Section 87A Bar Applies Only to Equity LTCG Under Section 112A: ITAT Chandigarh

Gurminder Singh Vs ITO (ITAT Chandigarh)

The assessee appealed against the order of the Commissioner of Income Tax (Appeals), dated 27.05.2025, arising from an intimation under Section 143(1) issued by the CPC on 23.03.2025 for Assessment Year 2024-25. The sole issue in dispute was the quantum of rebate available under Section 87A.

During the relevant year, the assessee earned Equity Long-Term Capital Gains of ₹1,03,264, Debt Long-Term Capital Gains with indexation of ₹1,19,020, Equity Short-Term Capital Gains of ₹2,247, Debt Short-Term Capital Gains of ₹7,607, and Income from Other Sources of ₹3,13,177, aggregating to ₹5,45,315. Agricultural income of ₹8,47,263 was also disclosed for rate purposes.

The assessee computed tax at ₹27,586, claimed a rebate of ₹25,000 under Section 87A, and declared tax payable of ₹2,586. The CPC, however, restricted the rebate to ₹3,119, increasing the tax payable to ₹24,467 and raising a total demand of ₹25,710.

The CIT(A) upheld the CPC’s action, holding that under Section 112A(6), rebate under Section 87A is available only on the income tax on total income as reduced by the tax payable on capital gains referred to in Section 112A(1). Accordingly, the CIT(A) held that the rebate could not be allowed against tax computed on long-term capital gains.

The Tribunal examined the scope of Section 112A(6) and observed that the prohibition on rebate under Section 87A applies only to the capital gains referred to in Section 112A(1). It noted that Section 112A(1)(ii) covers only long-term capital gains arising from the transfer of equity shares, units of equity-oriented funds, or units of a business trust, and therefore applies only to long-term equity capital gains.

The Tribunal observed that long-term debt capital gains are governed by Section 112, and no similar statutory bar exists on claiming rebate under Section 87A in respect of such gains. It further noted that the assessee had computed tax of ₹23,804 at 20% on the debt long-term capital gains of ₹1,19,020, while the tax on the remaining normal income (excluding equity long-term capital gains) amounted to ₹3,456. Since these amounts exceeded the rebate threshold of ₹25,000, the assessee was entitled to the full rebate of ₹25,000.

Accordingly, the Tribunal directed the CPC to recompute the tax payable by granting the full rebate under Section 87A. The appeal was allowed.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

1. The sole grievance of the assessee in captioned appeal for Assessment Year (AY) 2024-25 is quantum of rebate u/s 87A. The impugned order has been passed by learned Addl. / Joint Commissioner of Income Tax (Appeals)-1, Nagpur [CIT(A)] on 27-05­2025 in the matter of an intimation issued by CPC u/s 143(1) on 23-03­2025. Having heard rival submissions, the appeal is disposed-off as under.

2. From case records, it emerges that the assessee has earned following income during this year: –

Against computed tax of Rs.27,586/-, the assessee claimed rebate u/s 87A for Rs.25,000/- and tax payable after rebate was shown to be Rs.2,586/-. However, CPC restricted the rebate u/s 87A to the extent of Rs.3,119/- which enhanced the tax payable after rebate to Rs.24,467/-. Finally, a demand to Rs.25,710/- was raised by CPC against the assessee. Aggrieved, the assessee preferred further appeal.

3. The Ld. CIT(A) held that in terms of provisions of Sec.112A(6), rebate u/s 87A would be allowed from Income Tax on total income as reduced by tax payable on capital gains as referred to in sub-section (1) of s.112A. Thus, this rebate would not be allowed on tax computed on Long-Term Capital Gains. Aggrieved, the assessee is in further appeal before us.

4. We find that sub-section (6) of s.112A prohibit rebate u/s 87A on capital gains as referred to in sub-section (1) of s.112A. The clause (ii) of s.112A(1) refer to capital gains arising from transfer of a Long-Term Capital Asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust. This clause thus refers only to Long-Term Equity Capital Gains and not to Long-Term Debt Capital Gains. The debt Long Term capital gains are governed by the provisions of s.112 and as such there is no such bar to claim rebate u/s 87A on this income. The computation of tax payable would show that the assessee has computed tax of Rs.23,804/- (at the rate of 20% on Debt LTCG of Rs.1,19,020/-). The tax on other normal income (excluding equity LTCG) has been computed at Rs.3,456/- (i.e., Rs.337/- + Rs.3,119/-). Both these items well exceed rebate threshold limit of Rs.25,000/-. This being so, the assessee would be eligible to claim full rebate of Rs.25,000/-. We order so. The CPC is directed to re-compute the tax payable by the assessee.

5. The appeal stand allowed.

Order pronounced on 10^th December, 2025.