Section 87A rebate covers short-term capital gains tax for the relevant year; notice-free return adjustment is invalid.

For Assessment Year 2025-26, Section 87A under the new tax regime is described as allowing rebate against total tax payable without excluding tax on short-term capital gains taxable at the special rate under Section 111A. The later exclusion of special-rate income, stated to apply from Assessment Year 2026-27, does not apply to that year. The notes further state that denial of the rebate through return processing under Section 143(1), without prior intimation or an opportunity of hearing, contravenes the prescribed procedure and is invalid.

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Issues: Whether, for Assessment Year 2025-26, rebate under Section 87A was available against tax payable on short-term capital gains taxable under Section 111A, and whether its denial while processing the return without prior intimation was valid.

Analysis: Section 87A, applicable to an eligible assessee opting for the new tax regime, granted rebate by reference to total income and total tax payable, without excluding tax on income chargeable at the special rate under Section 111A. The exclusion of special-rate income from the rebate was introduced only from Assessment Year 2026-27 and could not be applied to the year in question. Further, the adjustment under Section 143(1) was made without prior notice or an opportunity of hearing, contrary to the prescribed procedure.

Conclusion: The assessee was entitled to rebate under Section 87A on the entire tax liability, including tax on short-term capital gains under Section 111A; the adjustment denying that rebate was invalid.

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