Jaipur Income Tax Appellate Tribunal (ITAT) has recently held that taxpayers opting for the new tax regime cannot be denied the Section 87A rebate merely because part of their income is taxed as short-term capital gains under Section 111A.
“The Tribunal has held that the rebate under Section 87A is available against the total income tax liability and cannot be denied merely because a part of the income is taxed at a special rate. While this provides strong judicial support for taxpayers to claim the rebate while filing their Income-tax Returns, the issue has not yet attained finality. Since there is no binding decision of the jurisdictional High Court or the Supreme Court on this specific controversy, the Revenue may continue to contest the issue in appropriate cases,” an tax expert said.
What is the case?
The case before the Jaipur Income Tax Appellate Tribunal (ITAT) involved Priyamvada Singhal, who challenged the denial of the Section 87A tax rebate on the tax payable on short-term capital gains (STCG) under Section 111A for Assessment Year 2024-25. The assessee had opted for the new tax regime under Section 115BAC and claimed the rebate as her total income was below the prescribed threshold. However, while processing the return under Section 143(1), the Centralised Processing Centre (CPC) denied the rebate on tax payable at the special rate under Section 111A.
Before the Tribunal, the assessee argued that several ITAT benches had consistently held that eligible taxpayers under the new tax regime can claim the Section 87A rebate even on tax arising from STCG taxable under Section 111A. The Revenue could not produce any contrary judgment from the jurisdictional High Court or the Supreme Court to support the denial of the rebate.
The Jaipur ITAT accepted the assessee’s contention and held that the denial of the Section 87A rebate was not in accordance with law. Relying on earlier Tribunal rulings, it directed the Income Tax Department to grant the rebate under Section 87A on the tax payable on STCG under Section 111A. Accordingly, the Tribunal allowed the assessee’s appeal.
Will the ITAT ruling benefit all eligible taxpayers?
Experts say that, as a matter of judicial discipline, an ITAT order is directly binding only on the parties to the appeal and does not automatically grant relief to all similarly placed taxpayers. However, decisions of coordinate benches carry significant persuasive value, particularly where multiple Tribunal benches have taken a consistent view and there is no contrary judgment from a High Court or the Supreme Court.
In the present case, the Jaipur Bench has expressly relied on a series of earlier ITAT rulings delivered by the Ahmedabad, Chennai, Rajkot, Agra and Mumbai Benches, thereby strengthening the judicial consensus on the issue.
Another tax expert said the ruling is directly applicable to the assessee in this case and to other taxpayers with similar facts whose matters are pending before the Lucknow Bench of the ITAT. He added that similar relief has also been granted by other Tribunal benches for FY 2023-24. Accordingly, taxpayers who have challenged the intimation or order for FY 2023-24 before the Commissioner (Appeals) or the ITAT are likely to receive similar relief.
Experts suggest that for FY 25-26, taxpayers should not claim the rebate against special rate income as income tax provisions are already amended to cover the same.
For current pending cases, if the CPC disallows the Section 87A rebate while processing the return under Section 143(1), taxpayers should first determine whether the denial is due to an incorrect system computation or involves a debatable legal issue. If it is a mistake apparent from the record, they may file a rectification application under Section 154.
“If the claim continues to be denied, the taxpayer can file an appeal before the Commissioner of Income-tax (Appeals) and, if necessary, further appeal to the Income Tax Appellate Tribunal (ITAT). Given the growing body of favourable ITAT rulings on this issue, taxpayers have a strong legal basis to challenge such adjustments,” he said.
