Section 87A rebate denied by CPC on STCG? ITAT Jaipur ruling offers relief to taxpayer for AY 2024-25

The Income Tax Appellate Tribunal (ITAT), Jaipur Bench, has ruled in favour of a taxpayer who was denied a Section 87A rebate on tax payable on short-term capital gains (STCG) under Section 111A of the Income Tax Act. The Tribunal held that, for Assessment Year (AY) 2024-25, the law did not contain an express restriction preventing the rebate from being applied to such special-rate income.

The ruling came in the case of Income Tax Officer v. Madhu Agarwal, ITA No. 390/JPR/2026. The order was pronounced on 20 August 2026 by the Jaipur Bench comprising Accountant Member Annapurna Gupta and Judicial Member Kuldip Singh.

Why the taxpayer’s 87A rebate was denied

The dispute arose after the Centralised Processing Centre (CPC), while processing Agarwal’s income-tax return under Section 143(1), denied the Section 87A rebate on tax payable on her STCG. The taxpayer had claimed a rebate of ₹23,276.

Her total income for AY 2024-25 was ₹4,99,250, including STCG of ₹3,61,100 and long-term capital gains of ₹44,082. She was assessed under the new tax regime under Section 115BAC(1A). Since her total income was below ₹7 lakh, she claimed the Section 87A rebate.

The Commissioner of Income Tax (Appeals) had allowed the claim, holding that Section 87A, as applicable for AY 2024-25, did not expressly exclude tax payable on STCG under Section 111A. The Revenue subsequently challenged that decision before the ITAT.

ITAT says law did not exclude STCG from 87A rebate

The Tribunal noted that several ITAT benches had already taken a consistent view that Section 87A applied to the entire tax liability computed on total income, without distinguishing between income taxed at normal rates and income taxed at special rates, including STCG under Section 111A.

The Tribunal also highlighted that the law contained an express restriction for certain long-term capital gains under Section 112A, but there was no corresponding exclusion for STCG under Section 111A. It considered this absence legally significant.

It further observed that the restriction introduced subsequently was prospective. The Finance Bill 2025 proposed new restrictions on Section 87A with effect from AY 2026-27. Therefore, the Tribunal said, the subsequent amendment supported the view that the restriction was not part of the law applicable to AY 2024-25.

The Tribunal also said that an automated denial by the CPC could not override statutory provisions. It found that, for AY 2024-25, there was no express bar in Section 87A or Section 111A preventing a resident individual with total income below ₹7 lakh from claiming the rebate against tax payable on STCG.

The ITAT therefore upheld the CIT(A)’s order and dismissed the Revenue’s appeal.

The ruling is specific to the law applicable for AY 2024-25. It does not mean that the same treatment automatically applies to later assessment years, where the statutory provisions governing the Section 87A rebate have changed.