The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that the rebate under Section 87A of the Income Tax Act, 1961, is also available against tax payable on short-term capital gains (STCG) taxable under Section 111A, provided the taxpayer satisfies the prescribed income threshold. 

The bench of Annapurna Gupta (Accountant Member) while allowing an appeal filed against the denial of the rebate during processing of the income tax return.

The dispute arose for Assessment Year 2024-25. The taxpayer had opted for taxation under the new tax regime under Section 115BAC and declared income comprising Stipend received during Chartered Accountancy training; Interest income from bank deposits; Dividend income from listed shares; and Short-term capital gains arising from the sale of listed equity shares taxable under Section 111A. 

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Since the taxpayer’s total income was within the statutory limit prescribed for claiming rebate under Section 87A, the rebate was claimed while filing the return.

However, while processing the return under Section 143(1)(a), the Centralised Processing Centre (CPC) denied the rebate to the extent it related to tax payable on short-term capital gains taxed at the special rate under Section 111A. The CPC granted the rebate only against tax computed at the normal slab rates. The first appellate authority also upheld this view. 

The principal question before the Tribunal was: Whether a taxpayer opting for the new tax regime under Section 115BAC can claim rebate under Section 87A against tax payable on short-term capital gains taxable under Section 111A when the total income is within the prescribed limit?

The taxpayer contended that the issue was no longer res integra, as several benches of the ITAT had consistently held that taxpayers covered by the new tax regime are entitled to claim Section 87A rebate even in respect of tax payable on short-term capital gains under Section 111A.

The Tribunal observed that the department could not cite any contrary judgment of the jurisdictional High Court or the Supreme Court overruling the line of decisions relied upon by the taxpayer.

Accepting the consistent judicial view taken by various ITAT benches, the Tribunal held that denial of rebate merely because the tax related to income chargeable under Section 111A was unsustainable in law.

Accordingly, it held that where a resident individual has opted for taxation under Section 115BAC and fulfils the income conditions prescribed under Section 87A, the rebate cannot be denied merely because part of the tax liability arises from short-term capital gains taxable at special rates under Section 111A. 

The ITAT directed the Income Tax Department to grant the rebate under Section 87A to the taxpayer and set aside the denial made during return processing.

The appeal was consequently allowed. 

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