Rebate on capital gains including shortterm gains taxed at special rates allowed, but rebate on digital asset tax rejected

Rebate eligibility under the income tax rebate provision was held to extend to tax charged on shortterm capital gains taxed at special rates and to tax on longterm capital gains; the tribunal applied a plainlanguage reading and relied on subsequent prospective legislative amendment to conclude no statutory bar existed, and directed allowance of the rebate (recomputed rebate Rs. 13,320). Separately, the claimant's request for rebate against tax on transfer of virtual digital assets was not pursued and consequently rejected. Appeal was allowed in part accordingly.

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Issues: Whether a resident individual assessed under section 115BAC(1A) whose total income does not exceed Rs. 7,00,000 is eligible to claim rebate under section 87A of the Income-tax Act, 1961 in respect of tax payable on incomes chargeable at special rates (including tax under section 111A and section 112) for Assessment Year 2024-25.

Analysis: The Tribunal examined the plain language of the amended first proviso to section 87A (Finance Act, 2023) which grants rebate where total income is chargeable to tax under section 115BAC(1A) and does not exceed Rs. 7,00,000. The provision contains no distinction between normal income and income taxable at special rates nor any express exclusion for tax under section 111A. By contrast, section 112A(6) expressly prescribes a limitation on rebate in respect of certain long-term capital gains, indicating that when the legislature intends to deny rebate for special-rate incomes it does so expressly. The "notwithstanding... but subject to the provisions of this Chapter" language in section 115BAC(1A) relates to computation of tax rates and does not, without express statutory language, curtail entitlement to rebates under Chapter VIII. The Tribunal also relied on coordinate ITAT decisions and considered that a prospective amendment (Finance Bill, 2025) does not affect the unamended law applicable to AY 2024-25. The CPC/system-driven denial was held not to override statutory entitlement and prior appellate authority supporting rebate on special-rate incomes was followed.

Conclusion: The assessee is entitled to rebate under section 87A for AY 2024-25 notwithstanding that the total income includes incomes taxed at special rates (including under section 111A and section 112); relief granted to the extent of Rs. 22,291.

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