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I have short-term capital gains of ₹1 lakh, by trading in shares this financial year. I am 55 and have taken VRS. I receive pension of about ₹5.5 lakh annually. Since my total income, including interest on deposits, will add up to ₹7 lakh, will there be no tax if I opt for the new tax regime? Should I still pay STCG on my profit from trading in shares?
Mani
Section 87A of the Income-tax Act,1961 (‘the Act’) has been amended by the Finance Act, 2023, to allow benefit of tax rebate under section 87A to individuals or HUF that are small taxpayers, up to a total income limit of ₹7 lakh.
The updated provisions of section 87A, applicable from FY 2023-24 onwards, provide that in case the total income of the assessee is chargeable to tax under new tax regime and the total income does not exceed ₹700,000, the taxpayer shall be entitled to a deduction from the amount of income-tax on his total income of an amount equal to:-
· one hundred per cent of such income-tax OR
· an amount of twenty-five thousand rupees,
whichever is less.
Total income is defined under Section 2 (45) of the Act as total amount of income referred to in section 5 of the Act, computed in the manner laid down in this Act which for a person who is a resident includes all income from whatever source derived.
It is important to note that under the new tax regime, the limit of ₹7 lakh shall be calculated without allowing deductions under Chapter VIA and certain other prescribed sections; also, certain exemptions under chapter 10 of the Act will not be allowed. The section 87A provides for marginal relief in case income exceeds ₹7 lakh.
Thus, in case the total income during the year is not in excess of the above mentioned ₹7 lakh limit, you may opt for new tax regime. Since the rebate is allowed against the total tax liability, any tax liability on STCG will be covered by the rebate and need not be separately paid.
The author is a practising chartered accountant
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