The Income Tax Appellate Tribunal (ITAT), Nagpur bench, allowed the taxpayer’s claim for ₹Discount of ₹23,494 under Section 87A on tax payable on Short Term Capital Gains (STCG), dismissing the appeal filed by the Income Tax Department.
The case involved Sanjay Kumar Garg, who filed his income tax return for the year 2025-26 under new tax regime. He stated that the total income is approx. ₹6.91 lakhs from salary, capital gains and other sources and demanded a discount of ₹23,494 under section 87A. However, the Central Processing Center (CPC) rejected the discount while processing his return under section 143(1), resulting in an additional tax claim of ₹16,160.
Garg challenged the refusal before the Commissioner of Income Tax (Appeals), who allowed the discount. The Revenue then approached the ITAT contending that Section 87A cannot be invoked in respect of tax payable under STCG taxable at the special rate under Section 111A.
The tax department also relied on CBDT Circular No. 13/2025 dated September 19, 2025, contending that it was never the intention of the legislation to provide rebate on income at special rates.
ITAT rejects tax appeal
The court rejected the IRS’s appeal and affirmed the taxpayer’s right to receive the rebate.
The ITAT noted that during the relevant assessment year, Section 87A did not expressly disallow tax rebates arising from STCG falling under Section 111A. He also noted that section 111A, which provides for taxation of certain STCGs at a special rate, does not contain a provision limiting the rebate under section 87A.
The Tribunal also relied on a number of earlier ITAT decisions which had taken the same view. These included decisions in the cases of Pranay M. Kothari, Manojbhai K. Kamdar, Jaishriben Jayantibhai Palsana and Basti Keshava Shenoy.
What did the tribunal say?
The key difference noted by the tribunal was the treatment of long-term capital gains under section 112A. The Act specifically limits the section 87A tax rebate paid on certain long-term capital gains. However, there was no corresponding limitation under Section 111A for STCG. The court considered this absence to be significant.
The Tribunal further noted that the limitations on discounts for special rate income were subsequently introduced through prospectively applicable amendments. He submitted that this supports the view that such limitation is not applicable to the relevant assessment year.
Accordingly, ITAT held that Garg was entitled to ₹23,494 Section 87A allowance on tax payable on his STKG. He rejected the arguments raised by the Revenue and upheld the order of the CIT(A).
This ruling is part of a series of decisions by ITAT on the applicability of Section 87A discount to STCG under Section 111A. The issue arose after KPK denied such discounts while processing the returns of several taxpayers, leading to disputes before the appellate authorities.