ITAT Mumbai allows Section 87A rebate on STCG: Here’s what taxpayers need to know
The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has given relief to a taxpayer by allowing the benefit of the Section 87A rebate on tax payable on short-term capital gains (STCG) from equity shares.
The dispute was about whether a taxpayer can claim the Section 87A rebate when a part of their income comes from equity share gains, which are taxed separately under the Income Tax Act.
What was the case about?
The taxpayer, a resident individual, had earned a total income of ₹5.28 lakh in Assessment Year (AY) 2024-25. This included around ₹1.42 lakh as short-term capital gains from selling equity shares.
Since her total income was below ₹7 lakh, she claimed a rebate under Section 87A, a tax benefit available to eligible individuals under the new tax regime.
However, while processing her income tax return, the Income Tax Department’s Central Processing Centre (CPC) rejected the rebate claim. The reason given was that the Section 87A rebate cannot be used to reduce tax payable on income that is taxed at special rates, such as short-term capital gains from shares.
The appellant challenged this decision before the appellate authorities and later approached the ITAT.
Why was there confusion over Section 87A rebate?
Under the IT Act, normal income such as salary, pension or interest income is taxed according to income tax slabs. Section 87A provides a rebate to individuals whose total income falls within the specified limit under the new regime.
However, some types of income, such as profits from selling shares, are taxed at special rates rather than the normal slab rates.
The tax department argued that since STCG from equity shares is taxed separately under Section 111A, the Section 87A rebate should not apply to such tax liability.
The appellant argued that the law applicable for AY 2024-25 did not specifically stop taxpayers from claiming the rebate on STCG from shares.
What did ITAT Mumbai say?
The Tribunal observed that for AY 2024-25, there was no clear provision in the law that prohibited taxpayers from claiming the Section 87A rebate against tax payable on short-term capital gains under Section 111A.
For example, the law contains a restriction on claiming the Section 87A rebate against certain long-term capital gains (LTCG) from equity shares. However, no such restriction existed for STCG gains under Section 111A during the relevant assessment year.
The Tribunal also referred to a similar ruling in Jayshreeben Jayantibhai Palsana v. ITO, holding that taxpayers could claim the STCG rebate for AY 2024-25.
Why Finance Act amendment is not applicable?
The ITAT also noted that the government later amended the law through the Finance Act, 2025, to clearly restrict the Section 87A rebate on certain special-rate incomes from AY 2026-27 onwards.
However, the Tribunal said this change cannot be applied to earlier years. A later amendment cannot take away a benefit available under the law in effect at that time.
Based on these observations, ITAT Mumbai allowed the taxpayer’s appeal and directed the tax authorities to provide the Section 87A rebate and recalculate her tax liability.
(Based on a report by TaxGuru)
Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.
