ITAT Jaipur rules in favor of taxpayer on Section 87A rebate

The dispute arose after the Centralised Processing Centre (CPC) denied the Section 87A rebate on tax payable on her STCG while processing Agarwal's income-tax return under Section 143(1). As reported by Mint, her total income for AY 2024-25 was ₹4,99,250, including STCG of ₹3,61,100 and long-term capital gains of ₹44,082. She was assessed under the new tax regime under Section 115BAC(1A) since her total income was below ₹7 lakh, and claimed the Section 87A rebate accordingly. The taxpayer had declared a total income of ₹4,99,250, comprising income from business or profession, income from other sources, short-term capital gains of ₹3,61,100 and long-term capital gains of ₹44,082. As she had not exercised the option under section 115BAC(6), her income was governed by the new tax regime under section 115BAC(1A).

The Tribunal noted that several ITAT benches had already taken a consistent view that Section 87A applied to the entire tax liability computed on total income, without distinguishing between income taxed at normal rates and income taxed at special rates, including STCG under Section 111A. According to Mint, the Tribunal highlighted that the law contained an express restriction for certain long-term capital gains under Section 112A, but there was no corresponding exclusion for STCG under Section 111A. It considered this absence legally significant and observed that the restriction introduced subsequently was prospective. The Tribunal further observed that the subsequent amendment restricting the rebate against special-rate income was introduced prospectively from Assessment Year 2026-27, and could not be applied to an earlier assessment year. A subsequent circular or explanatory memorandum could not override the clear statutory language applicable to the year under consideration.

The ruling is specific to the law applicable for AY 2024-25 and does not mean that the same treatment automatically applies to later assessment years, where the statutory provisions governing the Section 87A rebate have changed. For Assessment Year 2024-25, the law granted an eligible resident individual governed by section 115BAC(1A) a rebate of up to ₹25,000 where total taxable income did not exceed ₹7 lakh. The provision referred to tax payable on the taxpayer's total taxable income and did not expressly restrict the rebate to income taxable at normal slab rates. However, the subsequent amendment restricting the rebate against special-rate income was introduced prospectively and cannot be used to reduce tax payable on income subject to special rates, including short-term capital gains under section 111A. The ruling establishes important legal precedent for taxpayers claiming Section 87A rebates on STCG income under the applicable law for AY 2024-25.

The ITAT therefore upheld the CIT(A)'s order and dismissed the Revenue's appeal, as reported by Mint. The Commissioner of Income Tax (Appeals) had allowed the claim, holding that Section 87A, as applicable for AY 2024-25, did not expressly exclude tax payable on STCG under Section 111A. The ruling is particularly relevant to taxpayers whose rebate was denied by the Centralised Processing Centre while processing their return for Assessment Year 2024-25. Taxpayers with pending rectification applications or appellate proceedings may rely on this decision, along with similar rulings of other Tribunal Benches, to support their claim. The decision does not automatically grant a refund to every taxpayer who earned short-term capital gains, nor does it override the express restriction applicable to certain long-term capital gains under section 112A. As an ITAT ruling, it is binding in the case decided and carries persuasive value in similar matters, but remains subject to any contrary decision of a jurisdictional High Court or the Supreme Court.