ITAT Allows Section 87A Rebate on LTCG Taxable Under Section 112 for AY 2024-25:

The assessee is Syed Kabeer Hussain who filed his return of income for Assessment Year 2024-25 declaring total income of Rs. 5,21,940, comprising business income of Rs. 37,500, long-term capital gains of Rs. 4,61,900 and income from other sources of Rs. 22,539.

The assessee had opted for the new tax regime under Section 115BAC(1A) of the Income Tax Act and claimed rebate of Rs. 25,000 under Section 87A. However, while processing the return under Section 143(1), the CPC denied the rebate on the ground that the assessee's total income included long-term capital gains taxable at the special rate under Section 112. Consequently, the tax payable was computed at Rs. 29,202 instead of the amount claimed by the assessee. The CIT(A) upheld the denial.

The assessee contended that neither Section 87A nor Section 112, as applicable to AY 2024-25, contained any express prohibition against allowing the rebate on such long-term capital gains. The assessee further submitted that the restriction introduced through the Finance Act, 2025 was prospective and therefore could not be applied to the assessment year under consideration. The Tribunal noted that the assessee's total income was Rs. 5,21,940 and that he had opted for the new tax regime under Section 115BAC(1A). The rebate under Section 87A was denied solely because the total income also contained long-term capital gains taxable under Section 112.

The Tribunal further observed that the Finance Act, 2025 subsequently amended the provisions to restrict Section 87A rebate in respect of income taxable at special rates. According to the Tribunal, if such restriction had already existed for AY 2024-25, there would have been no necessity for Parliament to introduce a specific amendment subsequently. Relying upon the principle against retrospective operation of a substantive amendment, the Tribunal held that the later amendment could not be applied retrospectively to withdraw a benefit available under the law applicable to the relevant assessment year.

The Tribunal held that the assessee was entitled to rebate under Section 87A in respect of tax payable on long-term capital gains taxable under Section 112, as his total income did not exceed Rs. 7 lakh for AY 2024-25. Accordingly, the Tribunal set aside the order of the CIT(A) and directed the AO to allow the Section 87A rebate and delete the consequential demand. The grounds raised by the assessee were allowed and the appeal was consequently allowed.