Jaipur ITAT Allows Section 87A Rebate on Section 111A STCG for AY 2024-25

By CA Vijayakumar Shetty Income Tax Judiciary August 29, 2026

Case Name: Joint Commissioner of Income Tax Vs Gaurav Sharma (ITAT Jaipur)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2024-25
Courts: All ITAT, ITAT Jaipur

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Joint Commissioner of Income Tax Vs Gaurav Sharma (ITAT Jaipur)

Section 87A Rebate Available Even on Section 111A Short-Term Capital Gains for AY 2024-25: Jaipur ITAT

Summary: The Income Tax Appellate Tribunal, Jaipur Bench, considered the Revenue’s appeal and the assessee’s cross-objection concerning denial of rebate under Section 87A on tax payable on short-term capital gains. The dispute arose from processing of the assessee’s return under section 143(1), where the CPC denied the rebate. The CIT(A) allowed the claim, leading to the Revenue’s appeal. The assessee filed a cross-objection in support of the CIT(A)’s findings.

The Revenue questioned whether rebate under section 87A could be allowed on short-term capital gains taxable at special rates under section 111A. It also relied upon CBDT Circular No. 13/2025 dated 19.09.2025 and contended that rebate was never statutorily intended where income was chargeable under section 115BAC. The Tribunal recorded that the solitary issue concerned denial of rebate on tax paid on short-term capital gain.

The CIT(A), whose reasoning was reproduced extensively in the order, examined the interaction between section 115BAC and section 87A. The CIT(A) noted that the assessee had opted for the new tax regime and had not opted out of it. The amended section 115BAC(1A), inserted by the Finance Act, 2023 with effect from 01.04.2024, prescribes the applicable tax regime for AY 2024-25.

The CIT(A) reasoned that section 87A expressly provided the rebate by reference to total income and that the legislature had specifically restricted the rebate in relation to long-term capital gains under section 112A. According to the CIT(A), no comparable exclusion existed in section 111A for short-term capital gains. The CIT(A) therefore held that the CPC had incorrectly restricted the rebate and that section 115BAC could not be interpreted in isolation from the other provisions of Chapter XII. The CIT(A) further observed that section 87A is contained in Chapter VIII and that restrictions applicable to deductions under Chapter VI-A did not, according to the reasoning adopted, prevent the section 87A rebate.

The CIT(A) also referred to the decision of the ITAT Ahmedabad in Jayshreeben Jayantibhai Palsana Vs ITO, ITA No. 1014/Ahd/2025, order dated 12.08.2025. The reproduced reasoning stated that section 87A did not distinguish between normal-rate income and special-rate income and that section 111A contained no express exclusion. The CIT(A) also referred to the Bombay High Court decision in The Chamber of Tax Consultants vs. Director General of Income Tax (Systems), dated 24.01.2025, concerning system-based denial of section 87A claims.

Before the Tribunal, the assessee relied upon several ITAT decisions said to have consistently ruled in favour of the assessee, namely Pranay M Kothari Vs. DCIT, Manojbhai C. Kamdar Vs. ITO, Jayshreeben Jayantibhai Palsana Vs. ITO, and Basty Keshava Shenoy Vs. ITO. The Departmental Representative was unable to distinguish those decisions or point out any contrary decision of the jurisdictional High Court or Supreme Court.

The Tribunal noted that the decisions consistently held that section 87A operates with reference to the tax liability computed on “total income” without distinguishing between normal-rate income and income taxable at special rates under section 111A. It reproduced substantial portions of Venkatachalam Venkatraman v. ITO, where the Tribunal held that section 87A contained no exclusion for such income. The reproduced reasoning also referred to the Bombay High Court decision in Rajiv G Shah.

The Tribunal further reproduced the reasoning in Jayshreeben Jayantibhai Palsana, including the distinction between the absence of an exclusion in section 111A and the express provision contained in section 112A(6). It noted the view that section 115BAC(1A) governs computation of tax rates and does not, by itself, modify section 87A unless section 87A expressly provides such an exclusion.

The reproduced reasoning also considered the Finance Bill 2025 and treated the proposed restriction on section 87A as prospective. The Tribunal further referred to the Bombay High Court’s decision in The Chamber of Tax Consultants, observing that automated CPC utility or system configuration could not override statutory rights and that claims were to be adjudicated by the competent quasi-judicial authority on merits.

Following the ratio of the cited ITAT decisions, the Tribunal held that the assessee was entitled to rebate under section 87A notwithstanding that the total income included income taxable at special rates. The AO was directed to allow the rebate of Rs.25,000/- claimed by the assessee under section 87A and recompute the tax liability. The Tribunal held that the CIT(A) had committed no infirmity in allowing the rebate on taxes paid on short-term capital gain.

Consequently, the Revenue’s appeal was dismissed. The order records in paragraph 9 that the assessee’s cross-objection was dismissed because it supported the CIT(A)’s findings, while paragraph 10 states that the cross-objection was allowed, and paragraph 11 records the combined result as dismissal of the Revenue’s appeal and allowance of the assessee’s cross-objection. These conclusions are reproduced without correction from the source order.

Cases Discussed

Pranay M Kothari Vs. DCIT, ITA No. 3469/Chny/2025.
Manojbhai C. Kamdar Vs. ITO, ITA No. 572/RJT/2025.
Jayshreeben Jayantibhai Palsana Vs. ITO, ITA No. 1014/Ahd/2025.
Basty Keshava Shenoy Vs. ITO, ITA No. 3134/Bang/2025.
Venkatachalam Venkatraman v. ITO, ITA No. 1431/Chny/2025.
Rajiv G Shah, Bombay High Court.
The Chamber of Tax Consultants Vs. Director General of Income Tax (Systems), Bombay High Court.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, JAIPUR BENCH

The present appeal has been filed by the Revenue and the cross-objection has been filed by the assessee against the order passed by Office of the Commissioner of Income Tax, Appeal, Addl./JCIT(A), 01 Coimbatore (hereinafter referred to as “Ld. CIT(A)”) dated 12.01.2026 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2. The Revenue has raised the following grounds of appeal:-

1. Whether on the facts and circumstances of the case and in law, Ld. AddI/JCIT (A)-1, Bhubneswar is justified in allowing the rebate u/s 87A of the Act, on STCG, when rebate us 87A of the Act is not available in respect of Income Tax payable on income chargeable to tax on special rates, which includes Short Term Capital Gain u/s 111A of the Act?

2. Whether on the facts and circumstances of the case and in law, the order of the Ld. Ld. Addl/JCIT (A)-1, Bhubneswar is justified in view of the CBDT Circular No. 13/2025, dated 19.09.2025 which has made it expressly clear that it was never the statutory intent to allow rebate in cases WHARE income is chargeable to tax u/s 115BAC(1) of the Act, 1961 and any such cases WHARE rebate is erroneously claimed are to be rectified, thereby having no doubt that such claim was statutorily never permissible?

3. The appellant craves leave OR reserves right to amend, modify, alter, add OR forego any grounds) of appeal at any time (as per attached pdf).

3. The solitary issue in the present appeal relates to denial of rebate of tax claimed by the assessee u/s 87A of the Act, on the taxes paid on income earned on short term capital gain. The denial of rebate was made by the CPC while processing the return of income filed by the assessee, in the intimation made u/s 143(1) of the Act. The same was allowed by the ld. CIT(A). The ld. CIT(A) has dealt with the issue at para 6 to 6.6 of his order asunder:-

6. I have gone through the details available on record along with statement of facts, grounds of appeal and submission filed by the Appellant.

6.1 Now the issue pending before this appellate authority is to decide that ” whether the income earned under the head of Income from capital gain included in the total income specified under sec 115BAC, for the purpose of computing at the rate of tax given in sec 115BAC and avail the benefit of rebate as specified u/s 87A

The contention of the Appellant is duly perused and found to be acceptable. As per intimation order, the Appellant has filed the return of income under the provisions of 115BAC(6) i.e. new tax regime and has not opted out of it. The respective portion of this section reproduced as under:

Tax on income of individuals, Hindu undivided family and others.

115BAC. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021 but before the 1st day of April, 2024, shall, at the option of such person, be computed at the rate of tax given in the following Table, if the conditions contained in sub-section (2) are satisfied, namely:—

TABLE

Sl. No.	Total income	Rate of tax
(1)	(2)	(3)
1.	Upto Rs. 2,50,000	Nil
2.	From Rs. 2,50,001 to Rs. 5,00,000	5 per cent
3.	From Rs. 5,00,001 to Rs. 7,50,000	10 per cent
4.	From Rs. 7,50,001 to Rs. 10,00,000	15 per cent
5.	From Rs. 10,00,001 to Rs. 12,50,000	20 per cent
6.	From Rs. 12,50,001 to Rs. 15,00,000	25 per cent
7.	Above Rs. 15,00,000	30 per cent:

Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year:

Provided further that where the option is exercised under clause (i) of sub-section (5), in the event of failure to satisfy the conditions contained in sub-section (2), it shall become invalid for subsequent assessment years also and other provisions of this Act shall apply for those years accordingly.

Following sub-section (1A) shall be inserted after sub-section (1) of section 115BAC by the Finance Act, 2023, w.e.f. 1-4-2024:

32[(1A) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or Hindu undivided family or association of persons (other than a co-operative society), or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, other than a person who has exercised an option under sub-section (6),—

(i) for any previous year relevant to the assessment year beginning on the 1st day of April, 2024, shall be computed at the rate of tax given in the following Table, namely:—

Sl. No.	Total income	Rate of tax
1.	Upto Rs. 3,00,000	Nil
(1)	(2)	(3)
2.	From Rs. 3,00,001 to Rs. 6,00,000	5 per cent
3.	From Rs. 6,00,001 to Rs. 9,00,000	10 per cent
4.	From Rs. 9,00,001 to Rs. 12,00,000	15 per cent
5.	From Rs. 12,00,001 to Rs. 15,00,000	20 per cent
6.	Above Rs. 15,00,000	30 per cent;

(2) For the purposes of sub-section (1A), the total income of the person referred to therein, shall be computed—

(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or clause (ii) or clause (iii) of section 16 or clause (b) of section 24 in respect of the property referred to in sub-section (2) of section 23 or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or sub-section (2) of section 80CCH or section 80JJAA;

Following shall be substituted for the opening portion and clause (i) of sub-section (2) of section 115BAC by the Finance Act, 2023, w.e.f. 1-4-2024:

(2) For the purposes of sub-section (1A), the total income of the person referred to therein, shall be computed—

(ii) without set off of any loss,—

(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);

(b) under the head “Income from house property” with any other head of income;

(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and

(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

(3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:

Provided that where there is a depreciation allowance in respect of a block of assets which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.

Following second proviso shall be inserted after the existing proviso to section 115BAC(3) by the Finance Act, 2023, w.e.f. 1-4-2024:

Provided further that in a case where,—

(i) the assessee has not exercised the option under sub-section (5) for any previous year relevant to the assessment year beginning on or before the 1st day of April, 2023;

(ii) the income-tax on the total income of the assessee is computed under sub-section (1A); and

(iii) there is a depreciation allowance in respect of a block of assets which has not been given full effect prior to the assessment year beginning on the 1st day of April, 2024,

corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2023 in the manner as may be prescribed.

(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA,––

(i) who has exercised option under sub-section (5) for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021 but before the 1st day of April, 2024;

(ii) whose total income is computed under sub-section (1A),

the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in the said section.

Explanation.—For the purposes of this sub-section, the term “Unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).

Following sub-section (4) shall be substituted for the existing subsection (4) of section 115BAC by the Finance Act, 2023, w.e.f. 1-4-2024:

In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, (i) who has exercised option under sub-section (5) for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021 but before the 1st day of April, 2024;(ii) whose total income is computed under subsection (1A),

the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section80LA shall be available to such Unit subject to fulfilment of the conditions contained in the said section.

Explanation. -For the purposes of this sub-section, the term “Unit” shall have the meaning assigned to it in clause (zc) of section 246 of the Special Economic Zones Act, 2005 (28 of 2005).

Nothing contained in this section shall apply unless option is exercised in the prescribed manner47 by the person,-(i) having income from business or profession, on or before the due date specified under subsection (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years; (ii) having income other than the income referred to in clause (1), along with the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:

Provided that the option under clause (1), once exercised for any previous year can be withdrawn only once fora previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.

Following second proviso shall be inserted after the existing proviso to sub-section (5) of section 115BACby the Finance Act, 2023, w.e.f. 1-4-2024:

Provided further that the provisions of this sub-section shall not apply for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2024.

Following sub-section (6) shall be inserted after sub-section (5) of section 115BAC by the Finance Act, 2023, w.e.f. 1-4-2024

6) Nothing contained in sub-section (1A) shall apply to a person where an option is exercised by such person, in the manner as may be prescribed, for any assessment year, and such option is exercised,—

(i) on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for such assessment year, in case of a person having income from business or profession, and such option once exercised shall apply to subsequent assessment years; or

(ii) along with the return of income to be furnished under sub-section (1) of section 139 for such assessment year, in case of a person not having income referred to in clause (i):

Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise the option under this sub-section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.

Further, as per section 87A of the IT Act:

“Rebate of income-tax in case of certain individuals.

Sec.87A. An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of twelve thousand and five hundred rupees, whichever is less.

Following proviso shall be inserted in section 87A by the Finance Act, 2023, w.e.f. 1-4-2024:

Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income-

does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of incometax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;

exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the incometax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.

6.2 Further, the rebate under Section 87A is explicitly disallowed on long term capital gains under Section 112A due to specific provisions enacted by the legislature. However, no similar legislative intent is evident for disallowing the rebate under Section 87A on income such as short-term capital gains under Section 111A or long-term capital gains under Section 112, nor does it appear to have been intended by Parliament.

6.3 As per section 111A of IT Act, there is no restriction on claiming rebate u/s 87A on STCG arising from the sale equity share in a company or a unit of an equity oriented fund.

The provision of section 87A of the Act clearly states that the appellant is eligible for rebate up to Rs. 25,000/- or an amount equal to one hundred per cent of such income tax. The contention of the Appellant is prima-facie found to be genuine as the amendment through Finance Act, 2023 in respect of rebate u/s 87A of the Act, mentions total income chargeable to tax. The CPC did not allow the rebate claimed by the appellant u/s.87A of the IT Act. The restriction made by the CPC with respect to the rebate u/s 87A of the Act is found to be not correct in the light of Appellant’s detailed argument. Also, the CPC had erroneously interpreted Section 115BAC of the Act in isolation without considering its subordination to Chapter XII, which governs capital gains taxation. Since Section 115BAC of the Act applies to total income across all heads, and Section 87A allows a rebate except where expressly restricted (only for LTCG u/s.112A i.e., gain on equity shares and mutual fund taxed at 10%), the rightful claim of the appellant has to be appreciated.

6.4 Also, Section 87A should not be read in isolation but should be read with Section 115 BAC (1A) of the Act. Interpreting the proviso to Section 87A in isolation, without considering Section 115 BAC (1A), renders the interpretation ambiguous and imposes undue hardship on many Individual taxpayers in India. Section 115BAC, which provides a special tax regime, is contained within Chapter XII: Determination of Tax in Certain Special Cases. Chapter XII also encompasses other provisions prescribing special tax rates for specific categories of income, including STCG under Section 111A, long term capital gains under Section 112A and 112….. Further the term “under” in the Proviso to Section 87A has been legally defined as “directive” or “in accordance with,” implying that Section 87A must be read in strict alignment with the stipulations in Section 115BAC (1A) concerning the chargeability of tax on total income.

Thus, a liberal interpretation of the Proviso to Section 87A requires that its scope be understood in direct connection with Section 115BAC (1A) of the Act. Interpreting the Proviso broadly, to suggest that only income chargeable at slab rates is covered by the Proviso, would be legally unsound without drawing a clear distinction between total income and special income.

6.5. Further, the Hon’ble ITAT Ahmedabad (SMC Bench), in the case of Jayshreeben Jayantibhai Palsana v. ITO (Ward-1(9)), ITA No. 1014/Ahd/2025, vide order dated 12.08.2025, has held that …

5.9 This provision applies to any resident individual whose total income does not exceed Rs.7,00,000 and who is assessed under section 115BAC(1A). The statute does not draw any distinction between normal income and income chargeable at special rates, nor does it contain any express exclusion for tax arising under section 111A.

5.10 By contrast, the legislature has inserted an express bar on availability of section 87A rebate in section 112A(6), which states:

(6) Where the total income of an assessee includes any long-term capital gains referred to in sub-section (1), the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.

5.11 The absence of a corresponding clause in section 111A is legally significant and supports the principle that when the legislature intended to deny rebate in respect of special income (as in section 112A), it has done so expressly. In contrast, the absence of any exclusion in section 111A or in section 87A must be construed in favour of the assessee 5.15 In the recent judgment dated 24.01.2025 in the case of The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) [TS 5026-HC-2025(Bombay)-O], the Hon’ble Bombay High Court considered the issue of system-based denial of 87A rebate on STCG under section 111A for assessees who had opted for 115BAC(1A). While the Hon’ble Court refrained from interpreting the substantive provisions, it held that the assessee must be allowed to claim rebate under section 87A, and it is for the quasi-judicial authority to decide on merits

5.18 Accordingly, we hold that the assessee is eligible for rebate under section 87A for A.Y. 2024-25 even though the income includes STCG taxable under section 111A. The AO is directed to allow rebate of Rs. 13,320/- and recompute tax liability accordingly

6.5 Thus, the restriction on income from the Long-Term Capital Gain and Short-Term Capital Gain is that the deductions under Chapter VIA will not be allowed on such income. Since the Section 87 is incorporated in Chapter VIII the above provision is not applicable in this case.

Thus, a composite reading of the Section 87A r.w.s 111A r.w.s 112 does not bar the appellant from claiming rebate u/s 87A. In view of the above discussion and also for the fact that the appellant has continued the option exercised u/s 115BAC, it is held that the AO, CPC had erred in restricting the rebate u/s 87A of the Act.

6.6 Thus, all the grounds raised by the Appellant in the present appeal are treated as allowed.

4. Before us at the outset itself ld. counsel for the assessee pointed out that this issue has been dealt in various decisions of the ITAT ruling consistently in favour of the assessee as under:-

i) Pranay M Kothari Vs. DCIT in ITA No.3469/Chny/2025

ii) Manojbhai C. Kamdar Vs. ITO in ITA No.572/RJT/2025

iii) Jayshreeben Jayantibhai Palsana Vs. ITO in ITA No.1014/Ahd/2025

iv) Basty Keshava Shenoy Vs. ITO in ITA No.3134/Bang/2025

5. Before us, ld. DR was unable to distinguish the decisions, referred to by ld. Counsel for the assessee as above, nor she was able to draw my attention to any contrary decision of either the Jurisdictional High Court or the Hon’ble Apex Court in this regard.

6. We have gone through the orders of the ITAT, referred to by the ld. Counsel for the assessee, and have noted that it has been consistently held that the provisions of Section 87A of the Act provide rebate on the entire tax liability computed on the “total income” without drawing any distinction between income taxable at normal rates, and income taxable at special rates, i.e. short term capital gain taxable at rates specified u/s 111A of the Act. The findings of the ITAT in the case of Pranay M Kothari Vs. DCIT in ITA No.3469/Chny/2025 dated 23.03.2026 at para 7 to 9 of the order as under:-

……….

7. We note that an identical issue came up for consideration before this Tribunal in the case of Venkatachalam Venkatraman v. ITO [ITA No.1431/Chny/2025, order dated 20.08.2025]. The Tribunal therein held that the provisions of section 87A of the Act provide rebate on the entire tax liability computed on the “total income” without drawing any distinction between income taxable at normal rates and income taxable at special rates. It was accordingly concluded that rebate u/s.87A of the Act is available even in respect of such incomes taxed under special provisions. The relevant findings are extracted below for ease of reference:-

“5.0 been concluded that to claim the rebate total income is to be computed after excluding any special rate income so as to determine the final tax liability. We have noted that the view taken by the Ld.CIT(A) of assessee filing return u/s 115BAC and consequently ineligible for rebate is not in order. The only controversy in this case is whether rebate u/s 87A is available on all the incomes or there is any exclusion. We have noted that the provisions of section 87A do not provide for such an exclusion. The first proviso to section 87A includes an exemption qua total income falling u/s 115BAC (1A) however the impugned amendment has been brought by Finance Act 2024 w.e.f 01.04.2025. The present AY-2024 25 would not be hit by the same. We have noted that Hon’ble Bombay High Court in the case of Rajiv G Shah supra has held that “…there is no indication in the plain language of Section 87A that any category of income or tax should be excluded from the computation. If the total income is within the threshold prescribed, rebate cannot be denied….”. It istrite law that when provisions of the statute granting any benefit to the tax payer are unambiguously clear, no different interpretation thereof can be adopted. Accordingly, we are of the view that the assessee is entitled for claim of rebate u/s 87A. The orders of lower authorities are therefore set aside and the Ld.AO is directed to allow the assessee its claim of rebate u/s 87A. All the grounds of appeal raised by the assessee are therefore allowed.”

8. Further, we find support from the decision of the Coordinate Bench in JayshreebenJayantibhai Palsana Shingala Sheri ITO [ITA No.1014/Ahd/2025, order dated 12.08.2025), where it was held as under:-

“5.8 The amended first proviso to Section 87A [inserted by the Finance Act, 2023 w.e.f. A.Y. 2024-25] provides:

“Where the total income of the assessee is chargeable to tax under sub section (1A) of section 115BAC and the total income

(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction…’

5.10 By contrast, the legislature has inserted an express bar on availability of section 87A rebate in section 112A(6), which states:

5.12 At this point we discuss the interplay of Section 115BAC(1A) with Chapter XII where the scope is Confined to Computation of Tax Rates. Section 115BAC(1A) opens with the phrase:

“Notwithstanding anything contained in this Act but subject to the provisions of this Chapter…”

5.13 The purpose of this clause is to enable the computation of income tax under the concessional rate regime, subject to existing special rate provisions under Chapter XII, such as sections 111A, 112, 112A, etc. This clause governs the computation of tax and doesnot ipso facto affect eligibility to rebates or deductions unless specifically restricted. Section 87A is not part of Chapter XII; it is an independent rebate provision under Chapter VIII of the Act. Therefore, the overriding clause in section 115BAC(1A) does not derogate or modify section 87A, unless section 87A itself provides for exclusion, which, in the present case, it does not. Thus, section 87A operates on the total tax computed, whether it includes tax at slab rates or special rates, and applies so long as the total income threshold is met.

5.14 The CIT(A) placed strong reliance on the Explanatory Memorandum to the Finance Bill 2025, which clarified that rebate under section 87A is not available on tax arising from special rate incomes, including those under section 111A. However, we find this reliance to be misplaced for two reasons:

-Firstly, the Finance Bill 2025 itself proposes to insert new restrictions on rebate under section 87A w.e.f. A.Y. 2026-27, which implies that the existing law (i.e., as applicable to A.Y. 2024-25) does not contain such a restriction.

-Secondly, the Explanatory Memorandum cannot override the plain language of the statute. It is a tool of interpretation, not a source of substantive law.

Therefore, the prospective amendment in the Finance Act 2025 supports the view that under the unamended provision applicable for A.Y. 2024-25, rebate under section 87A cannot be denied merely because tax arises under section 111A.

5.15 In the recent judgment dated 24.01.2025 in the case of The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) [TS 5026-HC-2025(Bombay)-O], the Hon’ble Bombay High Court considered the issue of system-based denial of 87A rebate on STCG under section 111A for assessees who had opted for 115BAC(1A). While the Hon’ble Court refrained from interpreting the substantive provisions, it held that the assessee must be allowed to claim rebate under section 87A, and it is for the quasi-judicial authority to decide on merits.

Thus, the Hon’ble High Court clearly held that the CPC utility or system configuration cannot override statutory rights, and that each case must be adjudicated on its own merits. We at the Tribunal, being such a quasi-judicial authority, are therefore duty-bound to examine the claim in light of the statutory framework and not be influenced by automated denial or procedural logic adopted by the CPC.

5.16 The assessee has also relied on an appellate order dated 27.05.2025 passed by CIT(A)-1, Nagpur in the case of Avni Milanbhai Maniya, wherein on identical facts the CIT(A) allowed the claim of rebate under section 87A in respect of STCG taxable under section 111A. We also note that such decision was taken by the JCIT/AddI.CIT(A) relying on the decision of Beena ManishbhaiFofaria for the A.Y. 2024-25. While not binding, the said appellate order affirms that divergent views exist and such benefit has been allowed in similar factual circumstances.

5.17 In view of the above discussion, we find that the assessee is a resident individual and the total income declared for the assessment year 2024-25 does not exceed Rs. 7,00,000. It is also an admitted position that the assessee has exercised the option to be assessed under the new tax regime in accordance with the provisions of section 115BAC(1A) of the Act. On a plain reading of the statutory provisions, there exists no express bar either in section 87A or section 111A for denial of rebate in respect of tax payable on short-term capital gains arising from transfer of listed equity shares taxable at special rates under section 111A. The legislative intent is further clarified by the subsequent amendment proposed in the Finance Bill, 2025, which is prospective in nature and thereby reinforces that no such restriction was in force during the relevant assessment year. The denial of rebate under section 87A by the CPC, Bengaluru, appears to be based solely on system-driven logic and not on any statutory mandate. Moreover, the interpretation adopted by the CIT(A) in upholding such denial is, in our considered view, not in consonance with the plain and unambiguous language of the law as applicable for A. Y. 2024-25.”

9. Respectfully following the ratio laid down in the above cases, we hold that the assessee in the instant case is entitled to rebate u/s.87A of the Act for the impugned assessment year, notwithstanding that the total income includes taxable long term capital gains chargeable at special rates. The AO is accordingly directed to allow the rebate of Rs.25,000/- claimed by the assessee u/s.87A of the Act and recompute the tax liability. Thus, the grounds of appeal raised by the assessee are allowed.

7. The ITAT in the other decisions has also reiterated the proposition of law as above. The decision rendered by the ITAT in the cases above, squarely applies to the facts of the present case, following which, we hold that there is no infirmity in the order of the Ld.CIT(A) holding the assessee entitled to rebate u/s 87A of the Act on the taxes paid on short term capital gain.

8. In effect, the appeal of the Revenue is dismissed.

9. Since, the cross objections of the assessee was in support of the findings of the Ld. CIT(A), the same is dismissed.

10. Accordingly, the cross-objection filed by the assessee is allowed.

11. In combined result, the appeal of the Revenue is dismissed and the cross-objection filed by the assessee is allowed.

Order pronounced in the Open Court on 25.08.2026