Renu Singla Vs ITO (ITAT Delhi)
CPC CANNOT BORROW TOMORROW’S RESTRICTION FOR TODAY—REBATE u/s 87A ALLOWED ON STCG u/s 111A FOR AY 2025-26
The Delhi ITAT has held that, for AY 2025-26, a resident individual opting for the new tax regime u/s 115BAC(1A) is entitled to rebate u/s 87A even against tax attributable to STCG taxable u/s 111A, provided the total income does not exceed ₹7 lakh. The statutory exclusion of special-rate income was introduced only by the Finance Act, 2025 with effect from AY 2026-27 & could not be applied retrospectively. The CPC intimation was set aside & the assessee was granted the full rebate of ₹25,000.
Facts of the case
The assessee, Mrs. Renu Singla, filed her return of income for AY 2025-26 under the new tax regime prescribed u/s 115BAC.
Her total income was stated to be ₹5,73,610, which was below the threshold of ₹7 lakh prescribed in the first proviso to section 87A.
The income included income from house property, income from other sources & STCG arising from transfer of equity shares taxable at the special rate u/s 111A.
While computing her tax liability, the assessee claimed rebate of ₹25,000 u/s 87A against the total tax payable, including the tax attributable to STCG u/s 111A.
CPC restricts the rebate
While processing the return u/s 143(1), the CPC excluded the tax attributable to STCG u/s 111A from the scope of rebate.
Consequently, the CPC restricted the rebate from ₹25,000 to merely ₹3,500 & raised a demand of ₹25,840, including interest.
The assessee challenged the intimation before the CIT(A), NFAC. However, by order dated 14.03.2026, the CIT(A) affirmed the CPC’s action.
The assessee therefore approached the ITAT.
Assessee’s contention
The assessee submitted that the language of section 87A applicable to AY 2025-26 did not exclude tax payable on income chargeable at a special rate u/s 111A.
The first proviso to section 87A, inserted by the Finance Act, 2023 with effect from AY 2024-25, granted a rebate to a resident individual whose tax was computed under section 115BAC(1A) & whose total income did not exceed ₹7 lakh.
For such an assessee, the rebate was the amount of income-tax payable on the total income or ₹25,000, whichever was less.
There was no statutory language directing the exclusion of STCG u/s 111A while determining the rebate for AY 2025-26.
The assessee emphasised that the restriction excluding tax payable on special-rate income from the rebate was introduced only by the Finance Act, 2025, prospectively from AY 2026-27.
Therefore, the CPC could not apply that later restriction to AY 2025-26.
Reliance was placed upon the Ahmedabad ITAT’s decision in Jayshreeben Jayantibhai Palsana v. ITO [2025] 177 taxmann.com 411 & the Delhi ITAT’s decision in Manan Anand v. ITO, ITA No. 679/Del/2025.
Revenue’s contention
The Revenue relied upon the orders of the CPC & CIT(A).
Its position was effectively that the rebate u/s 87A was not available against tax payable on income chargeable at special rates & that the CPC had correctly confined the rebate to tax attributable to income taxable at normal slab rates.
Statutory language prevails
The Tribunal identified the short issue as whether rebate u/s 87A could be allowed against tax attributable to STCG u/s 111A for AY 2025-26 when the assessee’s total income was below ₹7 lakh & tax was computed under the new regime.
The ITAT observed that the first proviso to section 87A applicable for AY 2025-26 granted the rebate without carving out any exclusion for income taxable u/s 111A.
The restriction concerning special-rate income was introduced only by the Finance Act, 2025 & was specifically made applicable prospectively from AY 2026-27.
The Tribunal relied upon Jayshreeben Jayantibhai Palsana, wherein it had been held that an Explanatory Memorandum could not override the clear statutory language. A restriction absent from the enacted provision could not be imported merely on the basis of an explanation, administrative understanding or return-processing utility.
The Delhi coordinate Bench in Manan Anand had also followed the same principle & decided the controversy in favour of the assessee.
Full rebate allowed
Following these decisions, the ITAT held that the assessee was entitled to have the rebate u/s 87A computed against the entire tax payable for AY 2025-26, including tax attributable to STCG u/s 111A.
The Tribunal set aside the intimation u/s 143(1), directed that the full rebate of ₹25,000 be allowed & deleted the consequential demand.
The assessee’s appeal was accordingly allowed.
Author’s comments
The decision confirms that tax computation must follow the legislation applicable to the relevant assessment year—not a restriction introduced for a later year.
For AYs 2024-25 & 2025-26, the proviso to section 87A under the new regime referred to income-tax payable on the assessee’s total income. It did not direct that tax on STCG u/s 111A be carved out. In contrast, Parliament expressly introduced such a restriction from AY 2026-27. That amendment itself supports the inference that the earlier language contained no such exclusion.
The ruling is particularly relevant to CPC adjustments. A return-processing utility cannot read into section 87A words which Parliament had not yet enacted. If the statute allows the rebate, software logic cannot take it away.
There is an apparent numerical inconsistency in the order. While total income is stated to be ₹5,73,610, the income breakup records STCG as ₹20,36,155, which would make the total far higher. Considering the stated total income, the STCG figure likely intended is approximately ₹2,03,615. This should be verified from the return & computation.
For AY 2025-26, the law had not yet erected a wall around special-rate income. CPC could not travel to AY 2026-27, borrow that wall & build it one year early.
Cases Discussed
- Jayshreeben Jayantibhai Palsana v. ITO [2025] 177 taxmann.com 411 (Ahmedabad-Trib.)
- Manan Anand v. ITO, ITA No. 679/Del/2025
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short ‘ld. CIT (A)] dated 14.03.2026 for the Assessment Year 2025-26.
2. At the time of hearing, ld. AR submitted that the issue involved in the present appeal is whether rebate u/s 87A of the Income Tax Act, 1961 (for short ‘the Act’) is allowable on tax attributable to STCG taxable u/s 111A of the Act, for AY 2025-26, where the assessee’s total income i.e. Rs.5,73,610/- is below Rs.7,00,000 and tax is computed u/s 115BAC of the Act.
3. In this regard, ld. AR submitted that the assessee filed return for the year under consideration i.e. AY 2025-26 declaring total income of Rs.5,38,610/- (House Property Rs.3,51,701/-, Other Sources Rs.18,290/-, STCG u/s 111A Rs.20,36,155). He submitted that while processing u/s 143(1), referred to Annexure 2 of Paper Book, CPC restricted rebate u/s 87A from Rs.25,000/- to Rs.3,500/- by excluding tax on the STCG Component, raising a demand of Rs.25,840/- (incl. interest). He further submitted that ld. CIT(A) vide order dated 14.03.2026 confirmed the intimation.
4. He submitted that the restriction on Section 87A rebate for special-rate income was introduced only by the Finance Act 2025, prospectively w.e.f. AY 2026-27 and the First proviso to Section 87A (inserted by Finance Act 2023, w.e.f. AY 2024-25) grants rebate to a resident individual under Section 115BAC(1A) whose total income does not exceed Rs.7,00,000/- without carving out any exclusion for income taxable u/s 111A.
5. In this regard, he relied on the following decisions, which are placed on record :-
- Jayshreeben Jayantibhai Palsana vs ITO, 2025] 177 taxmann.com 411 (Ahmedabad-Trib).
- ITAT, Delhi in Manan Anand vs ITO, ITA No 679/Del/2025
6. In view of above submissions, he prayed that the order of Ld. CIT(A) dated 14.03.2026 and the intimation u/s 143(1) be set aside and full rebate of Rs.25,000/- u/s 87A be allowed and the demand of Rs.25,840/- (inc. interest) be deleted.
7. On the other hand, ld. DR of the Revenue relied on the order of the lower authorities.
8. Considered the rival submissions and material placed on record. I observed that the short question involved is whether rebate u/s 87A of the Act is allowable on tax attributable to STCG taxable u/s 111A of the Act for the year under consideration i.e. AY 2025-26, where the assessee’s total income i.e. Rs.5,73,610/- is below Rs.7,00,000 and tax is computed u/s 115BAC of the Act. I observed that while processing u/s 143(1), CPC restricted rebate u/s 87A from Rs.25,000/- to Rs.3,500/- by excluding tax on the STCG Component, raising a demand of Rs.25,840/- (incl. interest). I further observed that the restriction on Section 87A rebate for special-rate income was introduced only by the Finance Act 2025, prospectively w.e.f. AY 2026-27 and the First proviso to Section 87A (inserted by Finance Act 2023, w.e.f. AY 2024-25) grants rebate to a resident individual under Section 115BAC(1A) whose total income does not exceed Rs.7,00,000/- without carving out any exclusion for income taxable u/s 111A. In this regard, I find force from the decision of ITAT, Ahmedabad Bench in the case of Jayshreeben Jayantibhai Palsana vs. ITO (supra) wherein ITAT held that “section 87A rebate for special-rate income was introduced only by the Finance Act 2025, prospectively w.e.f. AY 2026-27 and Explanatory Memorandum to Finance Bill cannot overide statutory language.” I further observed that the coordinate Bench also decided the issue in favour of the assessee in the case of Manan Anand vs ITO (supra) also relied upon above judgement of ITAT, Ahmedabad. Accordingly, I set aside the intimation u/s 143(1) and full rebate of Rs.25,000/- u/s 87A is allowed and accordingly, the demand so raised is deleted.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on this 9th day of September, 2026.
