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CMA Intermediate · Direct and Indirect Taxation · Deductions, Rebate and Relief

Kiran, a resident individual taxed under section 202(1), has total income of Rs. 9,00,000, including long-term capital gains of Rs. 2,25,000 from listed equity shares on which securities transaction tax was paid as required. As per section 198(7), from which amount of tax is the section 156 rebate allowed?

The rebate is allowed from the tax on total income as reduced by the tax payable on the long-term capital gains. Section 198(7) says so, meaning the section 156 rebate cannot reduce the tax on those equity gains.

  1. ATax on the total income including the capital gains tax
  2. BTax on total income as reduced by tax payable on such capital gainsCorrect
  3. CTax on the long-term capital gains only
  4. DTax on the total income, but only up to Rs. 12,500

Explanation

Section 198(7) states that where total income includes long-term capital gains referred to in section 198(1), the rebate under section 156 is allowed from the income-tax on the total income as reduced by the tax payable on such capital gains. Hence the rebate cannot be used to offset the tax on the equity gains. The option covering total tax is wrong for this reason.

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