The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has provided relief to a taxpayer by allowing the benefit of the Section 87A rebate on tax payable on short-term capital gains (STCG) from equity shares. According to reports from Mint, the dispute centered on whether a taxpayer can claim the Section 87A rebate when part of their income comes from equity share gains, which are taxed separately under the Income Tax Act. The taxpayer, a resident individual, had earned a total income of ₹5.28 lakh in Assessment Year (AY) 2024-25, including around ₹1.42 lakh as short-term capital gains from selling equity shares. The appeal arose from the order of the Additional/Joint Commissioner of Income-tax (Appeals), Raipur dated 27.11.2025 for Assessment Year 2024-25, affirming the Central Processing Centre (CPC), Bengaluru's denial of rebate under Section 87A.
The Income Tax Department's Central Processing Centre (CPC) had rejected the rebate claim, citing that the Section 87A rebate cannot be used to reduce tax payable on income taxed at special rates, such as short-term capital gains from shares. As reported by Mint, the tax department argued that since STCG from equity shares is taxed separately under Section 111A, the Section 87A rebate should not apply to such tax liability. The appellant challenged this decision before appellate authorities and later approached the ITAT. The CIT(A) rejected the contention, holding that rebate under Section 87A is available only against tax computed at normal slab rates and not against income taxable at special rates under Chapter XII, including STCG under Section 111A. The CIT(A) relied on the scheme of Sections 87A, 111A and 112A, the Finance Bill, 2025, the Memorandum explaining its provisions, and the Finance Minister's Budget Speech for 2025-26 to conclude that rebate under Section 87A was not allowable against tax on STCG under Section 111A.
Under the Income Tax Act, normal income such as salary, pension or interest income is taxed according to income tax slabs, while Section 87A provides a rebate to individuals whose total income falls within specified limits under the new regime. According to Mint, some types of income, such as profits from selling shares, are taxed at special rates rather than normal slab rates. The tax department's argument was that since STCG from equity shares is taxed separately under Section 111A, the Section 87A rebate should not apply to such tax liability. The assessee, a resident individual assessed under Section 115BAC(1A), had filed a return declaring total income of ₹5,28,210, including STCG of ₹1,42,120 from transfer of equity shares. The CIT(A) noted that while Section 112A(6) expressly restricts rebate under Section 87A in relation to long-term capital gains, no corresponding restriction had been enacted in Section 111A.
The Tribunal observed that for AY 2024-25, there was no clear provision in the law that prohibited taxpayers from claiming the Section 87A rebate against tax payable on short-term capital gains under Section 111A. As reported by Mint, the law contains restrictions on claiming the Section 87A rebate against certain long-term capital gains from equity shares, but no such restriction existed for STCG gains under Section 111A during the relevant assessment year. The Tribunal identified the sole issue as whether a resident individual assessed under Section 115BAC(1A), whose total income did not exceed the prescribed threshold under Section 87A, was entitled to rebate under Section 87A against tax payable on STCG chargeable under Section 111A for Assessment Year 2024-25. Examining the statutory provisions, the Tribunal observed that Section 87A, as applicable for the relevant assessment year, did not contain any express exclusion in respect of tax payable on STCG under Section 111A. The Tribunal also referred to the decision in Jayshreeben Jayantibhai Palsana v. ITO, holding that taxpayers could claim the STCG rebate for AY 2024-25.
The ITAT noted that the government later amended the law through the Finance Act 2025 to clearly restrict the Section 87A rebate on certain special-rate incomes from AY 2026-27 onwards. According to Mint, the Tribunal stated that this change cannot be applied to earlier years, as a later amendment cannot take away a benefit available under the law in effect at that time. The amendment introduced by the Finance Act, 2025 with effect from 01.04.2026 was prospective and could not be applied to deny a benefit under the unamended provisions applicable to Assessment Year 2024-25. Based on these observations, ITAT Mumbai allowed the taxpayer's appeal and directed the tax authorities to provide the Section 87A rebate and recalculate her tax liability. The Tribunal set aside the order of the CIT(A), directed the Assessing Officer/CPC to grant the admissible rebate under Section 87A and recompute the tax liability in accordance with law.
