ITO Vs Kailash Mamodia (ITAT Jaipur)
A Future Ban Cannot Cancel a Present Rebate — ₹25,000 Relief Allowed on STCG for AY 2025-26
The Jaipur Bench of the ITAT has held that the express restriction introduced from AY 2026-27 against allowing rebate u/s 87A on special-rate income cannot be applied retrospectively to AY 2025-26. Under the earlier statutory language, tax payable on short-term capital gains u/s 111A was eligible for rebate because neither section 87A nor section 111A contained any prohibition.
The assessee, Kailash Mamodia, filed the return of income u/s 139(1) for AY 2025-26, declaring a total income of ₹5,97,594. The income comprised salary of ₹1,25,000, STCG u/s 111A of approximately ₹3,50,058, another small capital-gain component of ₹55 and income from other sources of ₹1,22,481.
The assessee was governed by the new tax regime u/s 115BAC. Since the total income did not exceed ₹7 lakh, he claimed the maximum rebate of ₹25,000 u/s 87A.
CPC processed the return u/s 143(1) on 10.01.2026 and denied the entire rebate because a substantial part of the tax arose from STCG taxable at a special rate.
The CIT(A) allowed the claim. It noticed that after the return utility was updated on 05.07.2024, section 87A rebate was systemically denied against several categories of special-rate income, including capital gains. As a result, even resident individuals whose total income remained within ₹5 lakh under the old regime or ₹7 lakh under the new regime were denied rebate on tax attributable to STCG.
