ITAT Ahmedabad Allows Rebate Under Section 87A on STCG Despite Special Tax Rate
For assessment year 2024-25, if your total income is below Rs. 7 lakh and you opt for the new tax regime under 115BAC(1A), then you can still claim a rebate under section 87A even if your income is entirely from Short-Term Capital Gains (STCG) under section 111A, because the law does not restrict it, and new rules from 2026 onwards do not apply yet.
The current appeal (ITA No. 1014/Ahd/2025) is being filed in the Income Tax Appellate Tribunal (ITAT), Ahmedabad, by Jayshreeben Jayantibhai Palsana, a resident of Limbadiya, Taluka Gadhada, District Bhavnagar (Gujarat). The appellant here is challenging an order dated 15.04.2025 passed by the Office of the Commissioner of Income Tax (Appeals)-2, Delhi, under section 250 of the Income Tax Act, 1961.
The woman filed her Income Tax Return (ITR) for Assessment Year 2024-25 on 30.07.2024. Her income sources included Short-term capital gains (STCG) on shares under Section 111A of Rs. 379,559, Long-term capital gains (LTCG) under Section 112A of Rs. 38,840, and Other income (like interest) of Rs. 9,236, with a total income of Rs. 427,635. Later, she found a minor mistake in her filed income tax return (in capital gains). So, she updated her return on December 31, 2024, as allowed under Section 139(5), and while updating her return, she chose a new tax regime under Section 115BAC(1A). Under the new tax regime, a taxpayer with a total income of up to Rs. 700,000 can get a rebate of up to Rs. 25,000 under section 87A, which can make their tax zero. So, in her updated return, her new total income came to Rs. 6,76,402. Under Section 111A, tax was only payable on STCG of Rs. 13,320. Hence, she claimed a complete rebate of Rs. 13,320 under section 87A, making her net tax zero.
When the Centralised Processing Centre (CPC), Bengaluru, processed her ITR, the department rejected her claim of a 13,320 rebate under section 87A and demanded full tax payment. On February 28, 2025, she sent her an intimation under Section 143(1) for the assessment year 2024-25. The income tax department said that, because the tax is on STCG (section 111A), which is taxed at a special rate of 15%, she is not eligible for the rebate under Section 87A. As a result, total tax demand rose to Rs. 15,820. The CPC did not give any valid reason for disallowing the rebate and, additionally, did not issue any SCN before disallowance, which is a violation of natural justice.
So, considering this unfair, the woman approached the Commissioner of Income Tax (Appeals) [CIT(A)], where the commissioner disagreed with the arguments served by the woman and said the new tax regime (115BAC(1A)) is subject to special rate provisions (Chapter XII). STCG is taxed at a special rate, so the rebate under section 87A does not apply. Also added, the Finance Bill 2025 does not apply to tax on STCG, even though the change is officially applicable from the assessment year 2026-27. Therefore, CIT(A) allowed the CPC’s decision to deny the rebate.
The woman, dissatisfied with the decision of CIT(A), then approached the Income Tax Appellate Tribunal (ITAT), Ahmedabad. When carefully examined and analysed, the case announced its decision in favour of the woman, saying Section 87A clearly allows a rebate if total income is under Rs. 7 lakhs, and it does not say that STCG under 111A is excluded. On the other hand, Section 112A (LTCG) explicitly denies rebates for gains above Rs. 1 lakh. The Finance Bill 2025 brings in a restriction, however, only from assessment year 2026-27, so it cannot be applied to assessment year 2024–25. Therefore, it clearly indicates CPC’s system wrongly blocked the rebate because of software logic, not the actual law.
Hence, in the final order, ITAT Ahmedabad declared the woman eligible to claim a rebate under Section 87A on tax payable on STCG under Section 111A. Quashed the total demand of Rs. 15,820 and ordered AO to allow a full tax rebate of Rs. 13,320 to the taxpayer under Section 87A and said any refund due should be processed.