CIT(A) Allows Section 87A Rebate on Short-Term Capital Gains under New Tax Regime – A Relief for Salaried Taxpayers
Introduction
In two recent appellate decisions for Assessment Year 2024-25, the Commissioners of Income Tax (Appeals) delivered much-needed clarity on a contentious issue:
Whether rebate under Section 87A of the Income-tax Act, 1961 can be claimed when total income includes Short-Term Capital Gains (STCG) taxed under Section 111A, by taxpayers opting for the new tax regime under Section 115BAC(1A).
Both appellate authorities concluded that the rebate is indeed available if the total income does not exceed ₹7 lakh, offering major relief to small and salaried taxpayers.
Case 1 – Order of CIT(A), Panchkula (A.Y. 2024-25)
(Order u/s 250 dated 08-08-2025 – copy on record with author)
The appellant, a salaried individual, filed a return under the new tax regime showing total income of about ₹5.30 lakh, including STCG under Section 111A.
The Centralised Processing Centre (CPC) denied the rebate under Section 87A, granting it only on income other than capital gains.
The assessee argued that—
- Section 87A refers to “total income” and does not exclude STCG under Section 111A.
- Denial of rebate through an intimation u/s 143(1) amounted to a prima facie adjustment on a debatable issue and violated natural-justice principles.
The CIT(A) observed that the CPC’s exclusion of STCG while computing the rebate was not correct. The Assessing Officer was directed to verify and allow the rebate if properly claimed.
Thus, the appeal was partly allowed, affirming that rebate u/s 87A can apply even where income includes STCG.
Case 2 – Order of CIT(A), Nagpur (A.Y. 2024-25)
(Order u/s 250 dated 15-10-2025 – copy on record with author)
In another similar case, the appellant’s total income (below ₹7 lakh) included STCG taxed at 15% u/s 111A. CPC again disallowed the rebate of about ₹24,000 u/s 87A.
The CIT(A) relied on the following reasoning:
- Section 87A read with Section 115BAC(1A) contains no restriction preventing rebate on STCG.
- Section 111A also imposes no such limitation.
- Bombay High Court judgment (The Chamber of Tax Consultants v. UOI, 24 Jan 2025) directed the Department to update the ITR utilities to allow the rebate on such income.
- In a comparable case (Beena Manishbhai Fofaria, A.Y. 2024-25), the appellate authority had already allowed the rebate.
Accordingly, the CIT(A) directed the Assessing Officer to allow the Section 87A rebate on STCG u/s 111A, holding that no statutory bar existed and the assessee’s total income was below the ₹7 lakh threshold.
Judicial and Practical Significance
1. Rebate is income-based, not head-based.
The relief applies to total income up to ₹7 lakh under Section 115BAC(1A); STCG u/s 111A forms part of that total.
2. ITR-utility corrections post Bombay HC ruling.
Procedural software restrictions cannot override statutory rights.
3. Limits of Section 143(1) adjustments.
Disallowing a rebate on such a debatable issue exceeds CPC’s mandate and breaches natural-justice principles.
4. Importance of appellate representation.
A well-structured appeal with proper legal interpretation can resolve complex processing disputes efficiently.
Key Legal Takeaways
- Rebate under Section 87A is based on total income, not the type of income.
- No restriction exists for STCG u/s 111A under the new regime.
- CPC cannot make prima facie adjustments u/s 143(1) on a debatable issue.
- The Bombay High Court’s decision ensures ITR utilities must allow the rebate for eligible taxpayers.
Practical Impact
1. Salaried taxpayers with income up to ₹7 lakh (including STCG) under Section 115BAC(1A) are eligible for full rebate u/s 87A (up to ₹25,000).
2. If the rebate was denied by CPC, taxpayers can file rectification u/s 154 or an appeal u/s 246A citing these rulings.
3. The decisions emphasize the importance of effective appellate representation in resolving computational errors.
Conclusion
These rulings reaffirm a taxpayer-friendly view that ensures Section 87A benefits are not denied merely due to STCG inclusion. They demonstrate how the CIT(A) appellate mechanism serves as a vital corrective forum when CPC processing leads to mechanical disallowances.
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About the Author: Rachamadugu Nitheesh Kumar is a CA Final Student with practical exposure in handling direct tax appeal matters before CIT(A). He writes on topics relating to income-tax interpretation and appellate procedures. Author can be reached at Mail Id: lifelonglearners777@gmail.com
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Very Good Information