Income Tax Act | Rebate U/S 87A Available On Short-Term Capital Gains U/S 111A Under New Regime: ITAT

Suchitra R. Kamble (Judicial Member) and Makarand V. Mahadeokar (Accountant Member) stated that on a plain reading of the statutory provisions, there exists no express bar either in section 87A or section 111A for denial of rebate in respect of tax payable on short-term capital gains arising from transfer of listed equity shares taxable at special rates under section 111A. The legislative intent is further clarified by the subsequent amendment proposed in the Finance Bill, 2025, which is prospective in nature and thereby reinforces that no such restriction was in force during the relevant assessment year.

The assessee being a resident individual with total income below Rs.7,00,000/-, claimed rebate of Rs.13,320/- under section 87A, as per the first proviso to section 87A inserted by the Finance Act, 2023, which allows a rebate up to Rs.25,000/- to an individual whose income is chargeable under section 115BAC(1A), provided the total income does not exceed the threshold.

The return was processed by the Centralised Processing Centre (CPC), Bengaluru, and intimation under section 143(1) was issued on 28.02.2025, whereby the assessee's claim of rebate under section 87A was disallowed.

The tax liability of Rs.13,319/- was upheld, and together with interest under sections 234B and 234C amounting to Rs.1,969/-, and health and education cess of Rs.533/-, a total demand of Rs.15,820/- was raised.

Aggrieved by the said adjustment, the assessee filed an appeal before the CIT(A).

The CIT(A) noted the assessee's argument that the Act was not explicit in denying the rebate for STCG u/s 111A, but found this not convincing, holding that section 115BAC(1A) is clearly subject to Chapter XII and that Memo 2025 sufficiently clarified legislative intent. As such, rebate under section 87A is not allowable on tax arising under section 111A.

The assessee submitted that section 112A(6) specifically provides that rebate under section 87A shall not be allowed in respect of long-term capital gains taxable under that section exceeding Rs.1 lakh. No such exclusion is provided either in section 111A or in section 87A.

The Tribunal observed that the assessee is a resident individual and the total income declared for the assessment year 2024–25 does not exceed Rs.7,00,000. It is also an admitted position that the assessee has exercised the option to be assessed under the new tax regime in accordance with the provisions of section 115BAC(1A) of the Act.

The denial of rebate under section 87A by the CPC, Bengaluru, appears to be based solely on system-driven logic and not on any statutory mandate, added the bench.

The Tribunal held that the assessee is eligible for rebate under section 87A for A.Y. 2024–25 even though the income includes STCG taxable under section 111A.

The bench directed the AO to allow rebate of Rs.13,320/- and recompute tax liability accordingly.

In view of the above, the Tribunal allowed the appeal.

Case Title: Jayshreeben Jayantibhai Palsana v. ITO, Ward-1 (9) Ahmedabad

Case Number: ITA No.1014/Ahd/2025

Counsel for Appellant/ Assessee: Jagdish Kasodaria

Counsel for Respondent/ Department: Amit Pratap Singh

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