87A Rebate is Available on STCG (111A) Tax for AY 2024-25 Under New Tax Regime.

87A Rebate is Available on STCG (111A) Tax for AY 2024-25 Under New Tax Regime.

Issue

Whether a resident individual who opted for the new tax regime (Section 115BAC(1A)) in Assessment Year 2024-25, and whose total income is below ₹7,00,000, can be denied the tax rebate under Section 87A against the tax payable on Short-Term Capital Gains (STCG) under Section 111A.

Facts

• The assessee, a resident individual, filed their income tax return for the Assessment Year 2024-25.
• The assessee opted for the new tax regime under Section 115BAC(1A) and had a total income of less than ₹7,00,000.
• This income included Short-Term Capital Gains (STCG) taxable at a special rate of 15% under Section 111A.
• The Centralized Processing Centre (CPC), while processing the return under Section 143(1), denied the rebate under Section 87A against the tax payable on the STCG.
• The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this denial, prompting the assessee to appeal to the ITAT.

Decision

• The Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal.
• The Tribunal followed a binding coordinate bench decision (Jayshreeben Jayantibhai Palsana v. ITO), which had adjudicated the identical issue.
• It held that the denial of the rebate was incorrect and directed the Assessing Officer to allow the rebate under Section 87A against the tax on STCG and recompute the tax liability.

Key Takeaways

• No Express Bar in the Law: The Tribunal found that for AY 2024-25, a plain reading of the statute shows no express bar in either Section 87A or Section 111A that denies the rebate against tax on such STCG.
• Legislative Intent is Clear: The law does contain a specific provision (Section 112A(6)) to deny the 87A rebate against tax on certain Long-Term Capital Gains. The absence of a similar provision for Section 111A signifies a clear legislative intent to allow the rebate.
• Prospective Amendment Confirms the Claim: The Tribunal noted that the Finance Bill, 2025, proposes to insert a restriction on this rebate, but this amendment is prospective (effective from AY 2026-27). This proves that the restriction did not exist in the law for AY 2024-25.
• System Logic vs. Statute: The CPC’s denial of the rebate was held to be based on “system-driven logic” or an automated configuration, which cannot override the plain and unambiguous language of the statute.
• Section 115BAC Does Not Override Rebate: The “subject to” clause in Section 115BAC(1A) relates to the tax rates in Chapter XII (like 111A), not the rebates in Chapter VIII (like 87A). Therefore, Section 115BAC does not override the availability of the 87A rebate.