Capital Gain: Filing taxes is a financial part of life for a taxpayer. Often people calculate their income. A taxpayer who had earned Rs 8.15 lakh as short-term capital gain from listed shares and had no other income, wanted to know why the income tax portal was imposing 20 per cent tax despite the total income being less than Rs 12 lakh under the new tax regime.

Taxpayer’s question

A taxpayer on ‘Ask Wallet Wise’ website asked, I have earned short-term capital gain of ₹ 8,15,000 by selling listed shares within 8 months. I don’t have any other income. Since my total annual income is much less than the tax-free limit of Rs 12 lakh under the new tax regime, I feel that my tax liability should be zero due to the exemption under Section 87A. However, the Income Tax Portal is calculating tax at a flat rate of Rs.20. Is there something wrong with the portal?

What advice did the expert give?

In fact, under Section 87A of the Income Tax Act, in the new tax regime, tax exemption up to Rs 60,000 is available. If the taxpayer is an Indian citizen and the income taxable at slab rates does not exceed Rs 12 lakh, then under the new tax regime, the exemption under Section 87A is available only on the tax levied on ordinary income. This exemption is not available for those incomes which are taxable at special rates, even if the total income including such special income does not exceed Rs 12 lakh.

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According to the expert, there is no problem with the portal. If you are a taxpayer as a citizen of a country, then the portal is correctly calculating tax on short-term capital gains from listed shares at a flat rate of Rs 20 lakh after the initial exemption limit of Rs 4 lakh. If you are a non-resident (NRI), you will have to pay 20 per cent tax on the entire short-term capital gains, as there is no facility to set off the shortfall in ordinary income against the marginal exemption in case of short-term capital gains.

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