Rebate u/s 87A and its Applicability to STCG u/s 111A While Filing ITR for AY 2025-26

Rebate u/s 87A and its Applicability to STCG u/s 111A While Filing ITR for AY 2025-26

Rebate under section 87A is available to Old Regime → If total income ≤ ₹5,00,000, maximum rebate = ₹12,500 (before cess) and in New Regime → If total income ≤ ₹7,00,000, maximum rebate = ₹25,000 (before cess).

This means that if the income tax liability (before cess) is up to ₹12,500 in the old regime or ₹25,000 in the new regime, the net tax payable becomes Nil after applying the rebate.

New Regime Position

In the new tax regime, the situation is different. The rebate u/s 87A is not allowed on incomes taxed at special rates (such as STCG u/s 111A), even if total income is within the threshold limit.

• There is no explicit restriction in the Income-tax Act for AY 2024-25 like the one for LTCG u/s 112A, but while filing ITR, the system does not allow the rebate against such STCG.
• Budget 2025 Amendment – It is clearly provided that rebate u/s 87A will not be available for any income chargeable at special rates. This amendment applies from FY 2025-26 onwards.

Governing Case Laws ( In favour of Assessee )

• Rebate under section 87A is a statutory right available to resident individuals whose total income does not exceed the prescribed threshold.
• Such rebate is available even where the income includes short-term capital gains (STCG) taxable under section 111A.
• In Jayshreeben Jayantibhai Palsana v. ITO [2025] (ITAT Ahmedabad), it was held that for A.Y. 2024–25, in the absence of any express exclusion in section 87A or section 111A, rebate cannot be denied merely because income includes STCG taxed at special rates.
• In The Chamber of Tax Consultants v. Director General of Income-tax (Systems) [2024] (Bombay High Court), it was emphasized that technical/system-driven restrictions in ITR utilities cannot override statutory entitlements; taxpayers must be allowed to claim rebate.
• Both rulings reaffirm the principle that substantive benefits granted by law cannot be curtailed by executive or procedural constraints.
• Therefore, until the prospective amendment by Finance Act, 2025 (effective from A.Y. 2026–27), all eligible taxpayers under the new regime [section 115BAC(1A)] with total income up to ₹7,00,000 are entitled to the full benefit of rebate under section 87A, whether their tax liability arises from slab-rate income or from STCG taxable under section 111A.

Current Confusion

Even for AY 2024-25 (FY 2023-24), the ITR utility is not allowing rebate against STCG u/s 111A under the new regime, despite the absence of an explicit statutory restriction. This creates ambiguity on whether the denial is:

• A policy intent already being implemented before the amendment’s effective date, or

Practical Way Forward

Since the position for AY 2025-26 is not clearly addressed in the law but is being applied in the ITR system, it is advisable to wait for a clarification from the Income Tax Department before taking a final call in such cases.