Tax rebate on short-term gains under dispute? ITAT gives taxpayer relief in a fresh ruling

The Income Tax Appellate Tribunal (ITAT), Nagpur bench, has upheld a taxpayer’s claim for a ₹23,494 rebate under Section 87A on tax payable on short-term capital gains (STCG), dismissing an appeal filed by the Income Tax Department.

The case involved Sanjay Kumar Garg, who filed his income-tax return for assessment year 2025-26 under the new tax regime. He declared total income of about ₹6.91 lakh from salary, capital gains and other sources and claimed a rebate of ₹23,494 under Section 87A. The Centralised Processing Centre (CPC), however, denied the rebate while processing his return under Section 143(1), resulting in an additional tax demand of ₹16,160.

Garg challenged the denial before the Commissioner of Income Tax (Appeals), who allowed the rebate. The Revenue then approached the ITAT, arguing that Section 87A could not be used against tax payable on STCG taxable at the special rate under Section 111A.

The Revenue also relied on CBDT Circular No. 13/2025 dated 19 September 2025, arguing that allowing the rebate on special-rate income was never the legislative intent.

ITAT rejects the tax department’s appeal

The tribunal dismissed the Revenue’s appeal and upheld the taxpayer’s eligibility for the rebate.

The ITAT noted that, for the relevant assessment year, Section 87A did not expressly bar the rebate against tax arising from STCG covered under Section 111A. It also noted that Section 111A, which provides for taxation of certain STCG at a special rate, does not contain a provision restricting the Section 87A rebate.

The tribunal also relied on a series of earlier ITAT decisions that had taken the same view. These included rulings in the cases of Pranay M Kothari, Manojbhai C. Kamdar, Jayshreeben Jayantibhai Palsana and Basty Keshava Shenoy.

What did the tribunal say?

A key distinction noted by the tribunal was the treatment of long-term capital gains under Section 112A. The law specifically restricts the Section 87A rebate against tax payable on certain long-term capital gains. However, there was no corresponding restriction for STCG under Section 111A. The tribunal considered this absence significant.

The tribunal further noted that restrictions on the rebate for special-rate income were subsequently introduced through amendments applicable prospectively. It said this supported the view that such a restriction was not applicable for the relevant assessment year.

Accordingly, the ITAT held that Garg was entitled to the ₹23,494 Section 87A rebate on the tax payable on his STCG. It dismissed the grounds raised by the Revenue and upheld the order of the CIT(A).

The ruling is part of a series of ITAT decisions on the applicability of Section 87A rebate to STCG under Section 111A. The issue has arisen after the CPC denied such rebates while processing several taxpayers’ returns, leading to disputes before appellate authorities.