Section 87A Rebate Cannot be Disallowed Against STCG If Income Is Below Rs 7 Lakh: ITAT

The ITAT Rajkot, in a recent significant ruling, held that a taxpayer cannot be restricted from Section 87A if its total income does not exceed the threshold of Rs 7 lakh. It ruled that no restriction applies to STCG under Section 111A, unlike LTCG, and deleted the Rs 29,070 tax demand raised by CPC.

The assessee, Jignesh Harjivanbhai Chikani, has initially declared its total income of Rs 5.49 lakh after claiming a rebate under Section 87A in its income tax return (ITR) filed for the Assessment Year 2024-25 under the new tax regime (Section 115BAC). However, during the return processing, the Centralised Processing Centre (CPC), Bengaluru, denied the assessee’s claim of rebate under section 87A and completed the assessment by raising a demand amounting to Rs 29,070.

Before the Income Tax Appellate Tribunal (ITAT), Rajkot, the assessee argued that its total income is Rs 5.49 lakh, which is explicitly below the statutory limit for claiming the Section 87A rebate, i.e., 7 lakh. Hence, as per the law, he is entitled to Section 87A relief. He further claimed that there is no restriction under the provisions of Section 111A or Section 87A on claiming a rebate against such tax.

The assessee also claimed that “restriction under section 112A(6) relates specifically to long-term capital gains exceeding Rs. 100,000/- and does not extend to STCG under section 111A. “ Consequently, the assessee stated that the Section 87A rebate should be allowed to him against Short-Term Capital Gains (STCGs).

When the tribunal analysed the arguments served by the assessee, it endorsed his arguments that there is no such law that restricts a rebate under Section 87A against STCGs if the total income does not exceed the limit of Rs 7 lakh. Further noted that while there is a restriction for LTCG under Section 112A, no such restriction exists for Section 111A. Hence, based on the aforementioned findings, the Section 87A rebate cannot be denied without a clear legal provision. Accordingly, the ITAT deleted the impugned tax demand and allowed the appeal.