Beware: ITR Glitch Could Lead to Penalties for Capital Gains Earners
Thank you for reading this post, don't forget to subscribe!Thousands of taxpayers could face penalties for unknowingly claiming an incorrect tax rebate, warns tax advisory platform efiletax. The culprit? A default setting in the Income Tax Return (ITR) utility that miscalculates eligibility for the ₹12,500 rebate under Section 87A.
Section 87A offers a rebate to resident individuals whose total income (including income taxed at special rates) doesn’t exceed ₹5 lakh (for the old tax regime). However, efiletax has flagged that the ITR utility’s auto-calculation often overlooks income from Short-Term Capital Gains (STCG taxed at 15%) and Long-Term Capital Gains (LTCG taxed at 10%).
Here’s how it can go wrong: Imagine you earn ₹3 lakh in salary and ₹3 lakh from STCG. Your total income is ₹6 lakh, making you ineligible for the rebate. Yet, the ITR utility might still show the rebate applied because it’s only considering your ₹3 lakh slab income. Unless you manually correct this, you’ll be filing an incorrect return.
“Many filers are misled into claiming a rebate they aren’t entitled to,” says efiletax. “The utility doesn’t flag these errors, and people assume it’s correct.”
This oversight carries significant risks:
- Underreporting: Claiming a rebate you don’t qualify for can be seen as underreporting income.
- Section 270A Penalties: This can trigger tax demands and penalties under Section 270A, which could be 50% to 200% of the tax due on the underreported income.
- Tax Scrutiny: Even a small, incorrect claim of ₹12,500 can invite scrutiny from the tax department.
What You Need to Do
Efiletax urges taxpayers to take these steps:
- Validate Your Eligibility: Don’t blindly trust the ITR utility. Confirm your eligibility for the Section 87A rebate yourself.
- Manually Override: If your total income (including all capital gains) crosses the ₹5 lakh threshold (for the old tax regime), you must manually remove the rebate from the ITR utility.
- Seek Professional Advice: When in doubt, “don’t guess — ask a CA.” Getting professional help can save you from future headaches and penalties.
Don’t let a default setting lead to an unexpected tax penalty. Be vigilant and ensure your ITR accurately reflects your total income.
