A controversy has arisen due to change in Income Tax Department utility on 5 July, 2024 regarding Computation of Rebate u/s 87A where the Assessee has opted for New Tax Regime u/s 115BAC(1A) for AY 2024-25 and has Income chargeable to Tax at Special Rates under various provision of Income Tax Act, 1961.
Whilst Professionals practising in Income Tax Law are scratching their heads to understand the lawful basis or lack thereof of Departmental View with respect to the above controversy, In this Blog post, we draw attention to the relevant Sections of Income Tax Act, 1961.
Section 2(45) of the Income Tax Act, 1961 – defines
“total income” means the total amount of income referred to in Section 5, computed in the manner laid down in this Act.
Section 5 of the Income Tax Act, 1961 refers to the Scope of Total Income as per Residential Status.
5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or
(c) accrues or arises to him outside India during such year :
Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6)* of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.—Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.
Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.
Section 115BAC(1A) [New Tax Regime] provides for the Income Tax Rates (other than Income Chargeable to Tax at Special Rates).
Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or Hindu undivided family or association of persons (other than a co-operative society), or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31)of section 2, other than a person who has exercised an option under sub-section (6), for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2024, shall be computed at the rate of tax given in the following Table
Section 115BAC(2) provides for Computation of Total Income in cases where 115BAC(1A) applies. Various clause of 115BAC(2) list the Exemption or Deductions or Set off Of Lossess which are Excluded (Not available) in the New Tax Regime.
For the purposes of sub-section (1A), the total income of the person referred to therein, shall be computed—
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or clause (ii) or clause (iii) of section 16 or clause (b) of section 24 [in respect of the property referred to in sub-section (2) of section 23] or clause (iia) of sub-section (1) of section 32 or section 32ADor section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause(iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCCor under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or sub-section (2) of section 80CCH or section 80JJAA;
(ii) without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);
(b) under the head “Income from house property” with any other head of income;
(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
Proviso to Section 87A provides for Rebate where Section 115BAC(1A) applies. Clause (1) of Proviso applies where total income is less than or equal to ₹ 7 Lakhs. Clause (2) of Proviso applies where the total income is more than ₹ 7 Lakhs.
Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income—
(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;
(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.
Section 112(6) provides that Rebate under section 87A “shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.” Similar provisions don’t exist for all other Incomes chargeable to Tax at Special Rates.
(6) Where the total income of an assessee includes any long-term capital gains referred to in sub-section (1), the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.
The possibility of The Finance (No. 2) Bill of 2024 bringing in a clarificatory amendment by way of Explanation to Section 87A remains Highly Probable.
However, Nowhere in proviso to Section 87A or Section 115BAC(1A) provides for a New Definition of “total income” as being interpreted by various sections to justify the Departmental view.
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