Income Tax Appellate Tribunal (ITAT) Ahmedabad bench allowed a taxpayer to claim Section 87A tax rebate on short term capital gains (STCG) under the new tax regime. This means that if your total income is up to Rs 7 lakh for the AY (Assessment Year) 2025-26, you won’t have to pay any income tax on your STCG income, all thanks to Section 87A tax rebate.

The ITAT Ahmedabad clarified that Section 87A operates on the total tax computed, whether it includes tax at slab rates or special rates, and applies so long as the total income threshold is met.

Just to remind you, the finance minister changed the law in Budget 2025 to prevent the Section 87A tax rebate on STCG income starting from AY 2026-27. But even before this amendment, the income tax department disabled Section 87A rebate claims from July 5, 2024 by modifying the software.

Due to the denial of Section 87A tax rebate, taxpayers earning less than Rs 7 lakh in the new tax regime were required to pay income tax on their STCG income. Additionally, those who were eligible for the Section 87A tax rebate on STCG income received a tax notice rejecting their claim.

This article is about one such taxpayer, Miss Jayshreeben, who was issued a notice for attempting to claim the Section 87A tax rebate on her STCG income and how she won the case at ITAT Ahmedabad.Jayshreeben challenged the tax department’s notice with the Commissioner of Appeals, CIT (A), but unfotunately, she lost the case. The CIT (A) rejected her claim for the Section 87A tax rebate on STCG income, heavily referencing the Finance Bill, 2025 for Budget 2025 which explicitly stated that the Section 87A tax rebate is not applicable to STCG.

ITAT Ahmedabad said that CIT (A) was wrong in relying on the Finance Bill 2025 to deny Section 87A tax rebate on STCG income. ITAT Ahmedabad said:

  • Firstly, the Finance Bill 2025 itself proposes to insert new restrictions on rebate under Section 87A w.e.f. A.Y. 2026–27, which implies that the existing law (i.e., as applicable to A.Y. 2024–25) does not contain such a restriction.
  • Secondly, the Explanatory Memorandum cannot override the plain language of the statute. It is a tool of interpretation, not a source of substantive law.

Brief facts of the case
According to the ITAT Ahmedabad order dated August 12, 2025, here’s the undisputed brief facts:

“The undisputed facts of the case are that the assessee, a resident individual, filed a revised return of income (ITR) for A.Y. 2024–25 declaring total income of Rs 6,76,402, comprising short-term capital gain on listed equity shares taxable at 15% under section 111A, and opted for taxation under the new regime under section 115BAC(1A). The CPC, Bengaluru, processed the return under section 143(1) and denied rebate under section 87A of Rs 13,320, resulting in a demand of Rs 15,820.”

ITAT Ahmedabad final judgement about Section 87A tax rebate on STCG

Judgement:

  • …we find that the assessee is a resident individual and the total income declared for the assessment year 2024–25 does not exceed Rs.7,00,000. It is also an admitted position that the assessee has exercised the option to be assessed under the new tax regime in accordance with the provisions of section 115BAC(1A).
  • “On a plain reading of the statutory provisions, there exists no express bar either in section 87A or section 111A for denial of rebate in respect of tax payable on short-term capital gains arising from transfer of listed equity shares taxable at special rates under section 111A.”
  • The legislative intent is further clarified by the subsequent amendment proposed in the Finance Bill, 2025, which is prospective in nature and thereby reinforces that no such restriction was in force during the relevant assessment year.
  • The denial of rebate under Section 87A by the CPC, Bengaluru, appears to be based solely on system-driven logic and not on any statutory mandate. Moreover, the interpretation adopted by the CIT(A) in upholding such denial is, in our considered view, not in consonance with the plain and unambiguous language of the law as applicable for A.Y. 2024–25.”

Judicial member, Suchitra R. Kamble and Accountant Member Makarand V. Mahadeokar from ITAT Ahmedabad said: “Accordingly, we hold that the assessee is eligible for rebate under section 87A for A.Y. 2024–25 even though the income includes STCG taxable under section 111A. The AO (tax department) is directed to allow rebate of Rs.13,320 and recompute tax liability accordingly. The demand of Rs.15,820 raised in CPC intimation stands deleted. Refund, if any, shall be granted in accordance with law. Order pronounced in the Court on 12th August, 2025 at Ahmedabad.”

Chartered Accountant Prakash Hegde says: “It is a welcome Order by the ITAT that is very logical and will benefit taxpayers who are pensioners or other senior citizens and those who are not too rich to cross a taxable income threshold of Rs 7 lakh per year. This ITAT order vindicated our view that until the Financial Year 2024-25, there was no restriction on the rebate under Section 87A.