87A and STCG: Will recent ITAT ruling on Section 87A allow taxpayer to claim 87A rebate on Short term capital gains while filing ITR?
Aug 26, 2025
Synopsis
A recent ITAT Ahmedabad ruling has sparked hope for taxpayers seeking Section 87A tax rebates on short-term capital gains (STCG) for FY 2024-25. The ruling states that Section 87A doesn't explicitly exclude STCG, potentially allowing the rebate if total income is within the specified limits. Read below to know more about Section 87A on STCG.
The ITAT Ahmedabad ruled on August 13, 2025, that you can claim Section 87A tax rebate on special rate income such as short-term capital gains (STCG). The ITAT Ahmedabad pointed out that Section 87A, as applicable for FY 2024–25, doesn’t differentiate between normal income and special rate income and it does not contain any explicit exclusion for tax under Section 111A.
To sum it up, the whole Section 87A tax rebate on STCG dispute kicked off on July 5, 2025, when the tax department updated its ITR processing software and disallowed Section 87A claims on STCG income. After multiple court cases and a revised ITR deadline extension, this new ITAT judgement sparks renewed hope for Section 87A rebate on STCG.
But keep in mind that starting April 1, 2025, the Section 87A rebate won’t be available for STCG or any special rate income, as clearly stated by the finance minister in Budget 2025. The catch is that for FY 2024-25, there’s no explicit rule mentioning about this. Read the full story to see how this ITAT ruling might affect the Section 87A tax rebate on special rate incomes like STCG under the new tax regime.
Can you get Section 87A tax rebate for FY 2024-25 on special rate incomes like STCG?
Akhil Chandna, Partner & Global People Solutions Leader, Grant Thornton Bharat,says:
“Based on the recent ruling by ITAT Ahmedabad, the resident taxpayers should be eligible to claim the rebate under Section 87A even on short-term capital gains (STCG) taxed under Section 111A, provided their total income does not exceed Rs 5 lakh under the old tax regime and Rs 7 lakh under the new tax regime for FY 2024-25.
The ITAT emphasised that Section 87A does not contain any express exclusion for STCG. Unlike Section 112A(6), which explicitly bars Section 87A tax rebate on long-term capital gains (LTCG), Section 111A has no such restriction.
The absence of a statutory bar must be interpreted in favour of the taxpayer. Further, this interpretation aligns with prior appellate decisions and the Bombay High Court’s stance that procedural denials by CPC cannot override substantive statutory rights.”
What did the Bombay High Court say about Section 87A tax rebate on STCG income
Advocate Kansal Bhimanshu who practices in direct tax laws explains:
“The tax department has disabled the Section 87A rebate by updating the ITR utility of AY 2024-25 from July 5, 2024, and intended that such a rebate is not allowed from tax liability under sections 111A, 112 and 112A of the Act, if a resident individual opts for new tax regime.”
“The matter reached the High Court of Bombay by filing a public interest litigation (32465/2024), in which the High Court has concluded with two important key findings, though it has not adjudicated whether rebate is allowed in such a case or not.”
“Firstly, the High Court has not accorded the view of the department that the law is crystal clear to debar the rebate under consideration. Secondly, it has asked the tax department to allow the claim of rebate under Section 87A of the Act in the ITR utility and leave open the tax authorities to decide the claim while processing the ITR / concluding the scrutiny assessments for AY 2024-25 and subsequent AYs.”
What about those taxpayers who got a tax demand notice for claiming 87A on STCG under the new tax regime for FY 2024-25?
Surana explains:
“Taxpayers who have received demand notices on account of denial of rebate under Section 87A against short-term capital gains (STCG) taxable under Section 111A for AY 2024–25 do have grounds to seek relief in light of the recent Ahmedabad ITAT ruling.
The disallowance in many cases has arisen from the CPC system, which was configured to restrict rebate on special rate incomes, resulting in automatic demands. The Tribunal has clarified that Section 87A, as applicable for AY 2024–25, does not contain any express restriction for STCG under Section 111A, and therefore the rebate should be available where the total income does not exceed Rs. 7 lakh and the assessee has opted for taxation under Section 115BAC(1A).
Thus, such taxpayers may pursue relief through a rectification application under Section 154 before CPC or the jurisdictional Assessing Officer (AO), citing the Tribunal’s interpretation.
If rectification is not accepted, the issue can be contested before the Commissioner (Appeals), where other favourable appellate orders (including the Bombay High Court ruling in the case of The Chamber of Tax Consultants vs. Director General of Income Tax (Systems) & Ors Public Interest Litigation (L) NO.32465 OF 2024) and the Ahmedabad ITAT decision can be relied upon.
Pending disposal of the appeal, taxpayers may also seek a stay of recovery of demand by highlighting that the matter is covered in favour of taxpayers at the Tribunal level. However, please note that there is no blanket solution applicable to all, as facts of each case may vary and therefore needs a customized approach in terms of litigation management.”
Section 87A rebate for STCG income is available for AY 2026-27?
The explanatory memorandum to Budget 2025 said this: "From assessment year 2026-27 onwards, for an assessee, being an individual resident in India whose income is chargeable to tax under the sub-section (1A) of section 115BAC, it is proposed to”,–
“Enhance the limit of total income for rebate in clause (a) and (b) of first proviso under section 87A, on which the income-tax is payable as per the rates of income-tax under sub-section (1A) of Section 115BAC, from Rs 7,00,000 to Rs 12,00,000 and the limit of rebate in clause (a) of first proviso to Section 87A from Rs 25,000 to Rs 60,000.”
“Rationalise the first proviso to Section 87A by inserting a new proviso so as to provide that the deduction under the first proviso, shall not exceed the amount of income-tax payable as per the rates provided in sub-Section (1A) of Section 115BAC.”
“Further, as mentioned above, such rebate of income-tax is not available on tax on incomes chargeable at special rates (for e.g.: capital gains u/s 111A, 112 etc.)."
Kansal Bhimanshu says:
“Interestingly, the language of the law is principally the same for AY 2025-26 and AY 2026-27. However, the ITR utility still does not allow a taxpayer to claim Section 87A rebate on STCG.”
“From the reading of the memorandum to the Finance Bill, 2025, the Government still intends that a rebate under Section 87A is not available on the tax liability on special tax rate income under Sections 111A, 112 of the Act (apart from tax liability under Section 112A of the Act, which specifically restricts such rebate).”
Bhimanshu points out that because there’s still a disconnect between the legal provisions and what the Government actually intends, those who feel wronged might end up having to go through litigation and submit appeals asking for more on this issue.
Bhimanshu adds: “In this regard, shelter of the judicial pronouncements can also be taken, in which it is held that (i) the legal provisions under the Act will prevail over the functionality in the ITR utility; and (ii) where there is no restriction in the law in relation to claim of rebate and two views are plausible, the view which is favourable to the taxpayer is always to be preferred.”
What about the order giving effect (OGE) for Section 87A judgement of ITAT?
Order giving effect (OGE) is a way for taxpayers to request the income tax department to implement any order passed by the ITAT or any court, provided the tax department has not already implemented it.
Experts say once the OGE for the Section 87A order by ITAT Ahmedabad is given, it does not mean a binding precedent as the tax department can file an appeal on a matter of question of law before the court.
Chartered Accountant (Dr.) Suresh Surana explains:
Once the Order Giving Effect (OGE) is issued by the tax department pursuant to the Ahmedabad ITAT ruling, the assessee in that specific case will indeed receive the Section 87A rebate against tax payable on short-term capital gains under Section 111A for AY 2024–25.
However, it is important to recognise the limited scope of such relief. The OGE is binding only in respect of the assessee whose appeal has been decided and does not automatically extend to all taxpayers.
While the ITAT’s reasoning carries persuasive value and may guide assessing officers in similar cases, it is not a binding precedent across jurisdictions. Moreover, ITAT decisions wherein questions of law is involved, are open to appeal by the Revenue (tax department) before the High Court, and therefore the matter could remain subject to further judicial scrutiny.
Surana says: “Although the Ahmedabad ITAT ruling strengthens the position of taxpayers, claims for similar relief may still face resistance from the Centralised Processing Centre (CPC) or field authorities until the issue is conclusively settled by higher judicial forums. Additionally, with the Finance Act, 2025 having expressly barred such rebate with effect from AY 2026–27, the benefit may be confined to earlier years and its continuance will depend on the outcome of any appeals by the Revenue (tax department).”
[The Economic Times]
