Let us take on one section at a time to understand this "Curious Case".
Maximum rebate for a resident individual under Section 87A with effect from FY 19-20 (AY 20-21) has been increased from an amount of INR 2,500 to INR 12,500. In other words, tax liability amounting to sums less than INR 12,500 for the AY 20-21 is not required to be extinguished by the assessee. As in, the total income of such assessee must not exceed INR 500,000.
A reproduction of the provision is as follows -
"An assessee, being an individual resident in India, whose total income does not exceed [five hundred thousand] rupees, 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 with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of [twelve thousand and five hundred] rupees, whichever is less."
Looking closely, this section provides that, "total income does not exceed", emphasis to be laid on the words "total income". The definition of total income as per Section 2(45) read with Section 5 of the act is "total income of any previous year of a person who is a resident includes all income from whatever source derived.......".
Keeping this on one hand, let us examine the provisions of Section 112A. Section 112A was made effective by the Finance Act, 2018, i.e from FY 18-19 (AY 19-20). This delves into the taxation of "Long Term Capital Gains in certain cases", the certain cases are LTCG arising from transfer of equity shares in a company or a unit of an equity oriented fund or a unit of a business trust and such transfer triggers payment of Securities Transaction Tax as per Finance Act, 2004. According to this section, tax is calculated at 10% plus cess and surcharge on the LTCG exceeding INR 100,000 i.e 10% of the gain is taxable of such gain in excess of INR 100,000 offering an upper limit up to which the same is not taxable. For instance, LTCG from transfer of listed equity shares is INR 150,000 then the tax amount is INR 50,000*10% plus cess.
Going further, sub-section 2(ii) states that "the amount of income-tax payable on the total income as reduced by the amount of long-term capital gains referred to in sub-section (1) as if the total income so reduced were the total income of the assessee". This however is subjected to basic exemption limits available for individuals and HUFs. This part clearly states that total income of the assessee is to be reduced by any LTCG as explained above, implying that the law-makers clearly want no benefit of lower tax rates for normal income in certain slabs both in the new and the old regime. Digging deeper, this section is also clear that benefit of Chapter VI-A deductions will also not be allowed to be claimed AND coming to the crux of this post, it prohibits relief in the form of Section 87A rebate under sub-sections 5 and 6.
With this background, one can sense an ambiguity that arises on reading these provisions in conjunction. Let us address this ambiguity point by point.
Section 87A states that the total income (post applicable deductions) whose tax liability is deductible as rebate by an amount as computed or INR 12,500 whichever is lesser.
Section 112A states that total income be reduced by the LTCG in certain cases (as stated above) and prohibiting relief under Section 87A. This section also commences with the word "nothwithstanding anything contained in Section 112" and nowhere states that it is notwithstanding anything contained in the Act.
Total income includes all income derived from whatever source derived as provided under Section 2(45) read with Section 5
The key to this resolution is affirming which of the above pointers are specific. It is a well-settled proposition under numerous key cases that a specific provision overrides a general provision.
There might be two schools of thought in this "Curious Case" as to which of the aforementioned sections of interest are general and which is specific.
The Board is yet to clarify this matter on the date of publishing this blog post and it is also wise to wait for the release of ITRs to understand the manner of computation for the matter discussed. However, one also has to keep in mind that the spirit of the provisions of law might not necessarily be upheld by the ITR preparation software and it is in best interest to await the clarification from the Board and any disputes that may arise from the same before the appellate authorities for a clearer picture.
Disclaimer - It is to be noted that all reasonable care has been taken by the author to avoid errors. The author accepts no responsibility for any error crept in any manner and shall not bear any kinds of losses/damages incurred by a reader on account of such errors. This article should be treated only for informational and knowledge gain purposes only. The author shall not accept any responsibility for any loss occurred by anyone on acting on this article.
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