ITAT Ahmedabad: 87A Rebate Allowed On Short-Term Capital Gains Under New Tax Regime; Finance Bill 2025 Bar Held Prospective
Pranav B Prem
The Income Tax Appellate Tribunal (ITAT) Ahmedabad has ruled that a resident individual opting for the default new tax regime under Section 115BAC(1A) is eligible to claim the rebate under Section 87A of the Income Tax Act even when their tax liability arises solely from short-term capital gains (STCG) taxed at special rates under Section 111A, provided their total income does not exceed ₹7 lakh.
The bench comprising Ms. Suchitra R. Kamble (Judicial Member) and Shri Makarand V. Mahadeokar (Accountant Member) allowed the appeal filed by Jayshreeben Jayantibhai Palsana, who had declared total income of ₹6.76 lakh for AY 2024–25. Her income included ₹3.79 lakh as STCG on listed equity shares taxed at 15% under Section 111A, along with minor long-term capital gains (₹38,840) under Section 112A and income from other sources (₹9,236).
In her revised return, filed within the permissible time under Section 139(5), the assessee opted for the new tax regime under Section 115BAC(1A) and claimed a rebate of ₹13,320 under Section 87A, as her total income was below ₹7 lakh. However, the Centralised Processing Centre (CPC) in Bengaluru denied the rebate in its intimation under Section 143(1) without providing any reason or issuing prior notice, and raised a demand of ₹15,820, including interest and cess.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the CPC’s denial, reasoning that Section 115BAC(1A) is “subject to” provisions of Chapter XII, which includes special rate provisions such as Section 111A. Relying on the Finance Bill 2025 memorandum, the CIT(A) stated that rebate under Section 87A is not available against tax on special rate incomes, even under the new regime.
Before the ITAT, the assessee argued that there is no express restriction in either Section 87A or Section 111A preventing rebate on STCG. By contrast, Section 112A(6) contains an explicit bar on the rebate for long-term capital gains exceeding ₹1 lakh. The absence of such a restriction for STCG shows the legislative intent to allow the rebate. The assessee also cited appellate rulings including Avni Milanbhai Maniya (CIT(A) Nagpur) and referred to the Bombay High Court’s directions in The Chamber of Tax Consultants vs. DGIT (Systems), which emphasised that procedural or system-based denials cannot override substantive rights under the statute.
The ITAT agreed with the assessee’s submissions, holding that:
Section 87A is an independent rebate provision under Chapter VIII and is not part of Chapter XII; hence, special rate provisions do not inherently restrict it unless explicitly stated.
The “subject to” clause in Section 115BAC(1A) governs tax computation but does not limit eligibility for rebates.
The Finance Bill 2025’s proposed amendment to exclude special rate incomes from rebate is prospective from AY 2026–27, meaning no such bar applied for AY 2024–25.
CPC’s automated denial cannot override clear statutory provisions.
Accordingly, the tribunal directed the Assessing Officer to allow the ₹13,320 rebate under Section 87A, delete the demand, and issue a refund if applicable. The ruling clarifies that under the law as applicable for AY 2024–25, taxpayers in the new regime with total income up to ₹7 lakh can claim the Section 87A rebate even if their income includes STCG taxable under Section 111A.
Appearance
Counsel For Appellant: Jagdish Kasodaria, AR
Counsel For Respondent: Amit Pratap Singh, Sr.DR
Cause Title: Jayshreeben Jayantibhai Palsana V. ITO
Case No: ITA No.1014/Ahd/2025
Coram: Ms. Suchitra R. Kamble [Judicial Member], Shri Makarand V. Mahadeokar [Accountant Member]
