87A rebate against tax computed on STCG: ITAT Judgement

Introduction

When I wrote an article on this topic last year, for the very first time, I stated that rebate was not being allowed from 5th June 2024. After that, I received many mails and comments asking what happened to the writs or appeals on it. Later, we taxpayers won that appeal in the High Court, but the position was again changed by making an amendment in the law through Finance act 2025, so what about the past cases? Will they get the rebate on STCG? Let’s discuss.

Recently a ruling of ITAT is getting viral on social media about whether a resident individual, assessed under section 115BAC(1A) which deals with new regime, with total income less than or equal to Rs. 7,00,000, can claim rebate u/s 87A against tax computed on STCG on listed equity units taxed that was taxed at 15% u/s 111A (Now 20% w.e.f. final budget dated 23 July 2024) for AYs where the finance act or any law does not expressly restrict such rebate.

Many people are of view that with effect of this ruling they will be getting rebate u/s 87A from now on, in this article we will discuss the same judgement. I tried to analyse it and write it in very simple manner.

Decision & details of the case

ITAT Ahmedabad (SMC Bench) i.e. small and medium cases bench in ruling Jayshreeben Jayantibhai Palsana Versus ITO, Ward-1 (9) Ahmedabad. - 2025 (8) TMI 842 - ITAT AHMEDABAD. The Tribunal allowed rebate u/s 87A on tax payable solely on STCG u/s 111A, as the assessee’s total income was below Rs. 7,00,000 and she opted for 115BAC(1A). In that case the AO was directed to allow the rebate and delete the demand. The order squarely addresses CPC’s system-driven denial and CIT(A)’s reliance on Finance Bill, 2025.

I have bolded the word “solely” above-

It is used to narrow the interpretation of above provision, as per my opinion, here ITAT want to clarify that the relief is being granted only because one isolated condition existed and not in a mixed situation, here the only component of tax liability was on short-term capital gains that was taxable under Section 111A. There was no other income chargeable at normal slab rates or other special rates (like lottery income, speculative business, etc). So in above ITAT case, 'solely' is a restrictive word, hence I interpreted this as the rebate u/s 87A was available only because the tax was on STCG under 111A, and nothing else formed part of tax liability.

Statutory framework as applied by the ITAT

Section 87A post FA 2023 for Ay 2024-25 under 115BAC(1A) granted rebate up to tax liability where total income less than Rs. 7,00,001. The section hasn’t distinguished between tax on “normal” income and tax computed at special rates, like in the case of section 111A.

Secondly, Section 111A didn’t have any express clause which denied applicability of 87A rebate like Section 112A(6) does expressly say, “87A rebate is to be computed after excluding tax on eligible LTCG” which showed that the legislature expressly said if it intended an exclusion, despite that there is no similar exclusion for 111A.

Also, section 115BAC(1A) bare act starts with a non-obstante clause stating that “subject to this Chapter (XII)” but Rebate of 87A is present in Chapter VIII, and in this case the ITAT held that 115BAC(1A) doesn’t override or curtail 87A.

Core Reasoning

For AY 2024–25, the law does not specifically stop taxpayers from using rebate under section 87A against tax on short-term capital gains under section 111A. Wherever Parliament wanted to block rebate, like in section 112A(6) for long-term gains, it clearly wrote it in the law. The rule of interpretation is that if the law mentions something in one place but leaves it out in another, it means that the omission is intentional. “Subject to Chapter XII” in 115BAC(1A) deals with rate computation, not with rebate under Chapter VIII. Hence the case of 87A continues to operate on “total tax on total income” if the income threshold is met.

Even the Finance Act, 2025 introduced an express bar on applying 87A against special-rate incomes (including 111A) from Ay 2026-27 onwards. That prospective amendment supports the view that no such bar existed for earlier AYs. Also, the explanatory memorandum that was issued, cannot override the statute.

System-driven denial will not be equivalent to denial by law, here as I discussed, CPC utility changed without any prior notice, but it cannot defeat statutory entitlement, as per the Bombay HC in The Chamber of Tax Consultants through its President Mr. Vijay Bhatt, Nidhi Dipen Tann, Abhishek Nareshkumar Jain, Dimple Kumari, Versus Director General of Income Tax (systems) New Delhi, Director of Income Tax, Centralised processing Centre, Bengaluru, Principal Chief Commissioner of Income-tax, Mumbai, The Central Board of Direct Taxes New Delhi, Union Of India. - 2025 (1) TMI 1501 - BOMBAY HIGH COURT directed that such claims be permitted and decided on merits, at that time, HC hadn’t decided the substantive issue, but had rejected that software-based foreclosure. This judgement plays an important role as here, the ITAT solely relied on this by giving an emphasis on the law, and not on the utility.

What are the key takeaways from this judgement

With this judgement, for Ay 2024-25 (Fy 2023-24) and, by parity, Ay 2025-26 (Fy 2024-25), if a resident individual, who had opted 115BAC(1A) i.e. is filing return in new scheme, and his total income is less than Rs. 7,00,001 after taking deductions under chapter VI-A that are allowable under 115BAC(1A) and after set-offs per the Income tax act, the rebate u/s 87A can be claimed even if tax arises only due to 111A, and in that case if CPC denies the rebate in 143(1), one can file rectification u/s 154 citing this order, and if not remedied, then one can proceed with appeal, by attaching computation showing threshold compliance and rely on Palsana (ITAT Ahd, 12-08-2025).

From Ay 2026-27 (Fy 2025-26 i.e. current year), by law or finance act, 87A rebate will not be available against special-rate incomes like 111A STCG / 112 / 112A i.e. tax on LTCG under the new regime dueto change in Finance Act, 2025. This will apply even if total income is within the nominal or “no-tax” band, which is now effectively higher for salaried due to the enhanced standard deduction and rebate.

Disclaimer

I discussed the ITAT (Ahemdabad SMC) ruling, which is currently applying across India, but the department to protect it’s revenue may file an appeal for this judgement, different benches may take a contrary view until High Court or the Supreme Court settles it. Hence there might be the possible litigation and hence we must consider protective claims.

Illustration (AY 2024-25)

Suppose, I Aman Rajput, being a resident individual, opted 115BAC(1A), Suppose my total income is Rs. 6,90,000 which is comprising only STCG u/s 111A, now I need to pay a tax @15% that is Rs. 1,03,500 + health and education cess @4%, currently I am ignoring that for simplicity in illustration.

87A rebate up to tax payable should be available as here my total income is less than Rs. 7,00,000, So, my net tax should be Nil. If CPC denies, I could rely on Palsana case judgment.

Conclusion:

I would like to conclude my article by this table, which will simplify and easily summarise what I discussed above:

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