Bangalore ITAT Clarifies 87A Rebate Available Under New Tax Regime

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) held that a rebate under Section 87A of the Income Tax Act cannot be denied merely because a portion of the assessee’s income consists of short-term capital gains taxable under Section 111A. The Tribunal observed that for Assessment Year 2024-25, neither Section 87A nor Section 111A contained any express restriction prohibiting a rebate on such special rate income.

The assessee, an individual taxpayer, had filed the return for AY 2024-25 declaring a total income of Rs 6,25,580 under the new tax regime under Section 115BAC(1A). The income included short-term capital gains on listed equity shares amounting to Rs 113,067 taxable under Section 111A. Since the total income was below Rs. 7 lakh, the assessee claimed a rebate under Section 87A amounting to Rs 25,000. However, while processing the return under Section 143(1), the Central Processing Centre (CPC) restricted the rebate only to tax payable on income taxed at normal slab rates and denied the rebate on the tax attributable to short-term capital gains.

The rectification application filed under Section 154 was also rejected on the ground that a rebate under Section 87A was not available against income taxable at special rates. The Commissioner (Appeals) upheld the CPC’s action, holding that a rebate under Section 87A was available only against tax computed under Section 115BAC(1A) and not against income taxable under special provisions like Section 111A.

On further appeal, the Tribunal disagreed with the lower authorities. It was observed that Section 87A grants a rebate with reference to “total income” and the definition of total income under Section 2(45) includes income chargeable under all heads, including capital gains. The Bench noted that Parliament had specifically restricted rebates in Section 112A(6) relating to long-term capital gains, but no such restriction existed under Section 111A during the relevant assessment year.

The Tribunal also relied on the Ahmedabad Bench ruling in Jayshreeben Jayantibhai Palsana v. ITO, which had similarly held that a rebate under Section 87A could not be denied on short-term capital gains taxable under Section 111A in the absence of any statutory prohibition. It further observed that the amendment introduced by the Finance Act, 2025, restricting rebates against special rate income was prospective in nature and itself demonstrated that no such restriction existed earlier.

Thus, the Tribunal set aside the order of the Commissioner (Appeals) and directed the CPC/AO to grant a rebate under Section 87A as claimed by the assessee and delete the consequential demand.

To Read Full Order, Download PDF Given Below.