ITAT Chandigarh Allows Section 87A Rebate on Long-Term Capital Gains from Debt Mutual Funds

ITAT Chandigarh Allows Section 87A Rebate on Long-Term Capital Gains from Debt Mutual Funds

The Income Tax Appellate Tribunal (ITAT), Chandigarh, in a significant ruling on December 10, 2025, allowed a taxpayer to claim a rebate under Section 87A of the Income-tax Act, 1961, on Long-Term Capital Gains (LTCG) arising from debt mutual funds for past assessment years.

Key Highlights of the Ruling:

• Case Details: In ITA No. 887/CHANDI/2025, the taxpayer challenged a tax demand of ₹25,710. The CPC had restricted the Section 87A rebate to income taxable at normal rates, excluding the LTCG from debt mutual funds which is taxable at a special rate under Section 112.

• Tribunal’s Observations:

  • The Tribunal examined Section 112A(6), which restricts Section 87A rebate for certain capital gains.

  • It clarified that this restriction applies only to LTCG from listed equity shares, equity-oriented mutual funds, or business trusts (under Section 112A).

  • LTCG from debt mutual funds falls under Section 112 and is not covered by the restriction in Section 112A(6).

• Verdict: The Tribunal held there is no statutory bar on claiming Section 87A rebate against tax payable on LTCG from debt mutual funds for the relevant past years. The tax demand was set aside, and the CPC was directed to recompute the tax liability granting the full rebate.

Implications for Taxpayers:

• Past Years: For assessment years prior to AY 2025-26, taxpayers with LTCG from debt mutual funds (taxable under Section 112) can claim the Section 87A rebate. Those previously denied this benefit may seek rectification or appeal.

• Future Years (AY 2025-26 Onwards): The ruling will not apply prospectively. The Finance Act, 2025 has amended the law to explicitly exclude incomes taxable at special rates from the Section 87A rebate under the new tax regime starting from Assessment Year 2025-26.