Beware: ITR Glitch Could Lead to Penalties for Capital Gains Earners
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.