Rebate under Sec 87A cannot be denied just because income includes STCG (Sec 111A), if total income is below Rs. 7 lakh: ITAT

Can Section 87A rebate be claimed on STCG under Section 111A if income is below Rs. 7 lakh under Section 115BAC?

Facts of the Case

The appellant, a resident individual, filed a return of income for the Assessment Year (A.Y.) 2024-25, declaring a total income of Rs. 5,49,090 under the provisions of Section 115BAC. The appellant claimed a rebate under section 87A of the Income Tax Act, 1961.

The Centralized Processing Centre (CPC), Bengaluru, processed the return and denied the rebate under section 87A, resulting in a tax demand. Although the appellant filed a rectification application under section 154, the CPC rejected it and confirmed the demand. An appeal before the CIT(A) was subsequently dismissed, leading the assessee to appeal to the Income Tax Appellate Tribunal (ITAT).

Issue of the case

Whether a resident individual who opts for the tax regime under section 115BAC(1A) and has a total income below Rs. 7,00,000 is eligible to claim a rebate under section 87A against tax payable on short-term capital gains (STCG) taxable under section 111A, in the absence of any express statutory restriction?

Decision of the Tribunal

The Tribunal ruled in favor of the taxpayer, confirming that individuals with a total income below Rs. 7,00,000 under the new tax regime are eligible for the Section 87A rebate, even if their income includes short-term capital gains.

The court clarified that the law contains no specific restriction against this rebate for such gains, and the previous denial by the tax department was an unjustified, system-driven error rather than a legal requirement. Consequently, the Assessing Officer was ordered to grant the Rs. 25,000 rebate and recalculate the tax demand accordingly.