Section 87A Rebate Permissible on Section 111A Short-Term Capital Gains for AY 2024-25: Analysis of Joint Commissioner of Income Tax Vs Gaurav Sharma (ITAT Jaipur)

1. Background of the Dispute

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) in Joint Commissioner of Income Tax Vs Gaurav Sharma examined whether an assessee assessed under the new tax regime prescribed by Section 115BAC(1A) can still claim rebate under Section 87A on tax payable on short-term capital gains (STCG) taxed at the concessional rate under Section 111A for Assessment Year (AY) 2024-25.

The matter came before the Tribunal in the following manner:

  • The assessee filed a return opting for the new regime under Section 115BAC.
  • While processing the return under Section 143(1), the Centralized Processing Centre (CPC) disallowed the assessee’s claim of Section 87A rebate, on the ground that the income included STCG taxable at special rates under Section 111A.
  • The assessee preferred an appeal before the Ld. CIT(A), who accepted the assessee’s contention and directed that the rebate under Section 87A be allowed.
  • The Revenue challenged this relief before the ITAT, while the assessee filed a cross-objection in support of the Ld. CIT(A)’s order.

The core question before the Tribunal was:

Whether, for AY 2024-25, an assessee governed by Section 115BAC(1A) is barred from availing rebate under Section 87A on tax attributable to STCG taxable at special rates under Section 111A.

2. Grounds Raised by the Revenue

The Revenue’s appeal essentially rested on two legal propositions:

  1. Non-availability of Section 87A rebate on special rate income
    It was argued that where income is taxable at special rates (including STCG under Section 111A), the rebate under Section 87A cannot be granted on the income-tax arising from such income.

  2. Reliance on CBDT Circular No. 13/2025 dated 19.09.2025
    The Revenue submitted that this Circular clarified that it was never the statutory intention to allow Section 87A rebate where income is taxed under Section 115BAC(1) (and by extension, under the new regime), and that any such rebate allowed needed rectification. On this basis, the Department contended that the assessee’s claim was not legally tenable.

The Department also reserved its right to modify or add grounds at a later stage.

3. Issue Before the Tribunal

The Tribunal identified a single, focused issue for adjudication:

  • Whether the assessee was legally entitled to rebate under Section 87A on tax payable on STCG that was taxed under Section 111A, where the assessee had opted for the new regime under Section 115BAC, and the total income otherwise fell within the rebate threshold.

The Ld. CIT(A) had already decided this issue in favour of the assessee after an extensive discussion on the interplay between Section 115BAC and Section 87A, along with the provisions dealing with capital gains.

4. Findings and Reasoning of the CIT(A)

4.1 Applicability of Section 115BAC and Statutory Framework

The Ld. CIT(A) first examined the statutory backdrop:

  • The assessee had filed the return under the new regime (Section 115BAC(6) as applicable) and had not opted out of that regime.
  • The provisions of Section 115BAC(1) and the newly inserted Section 115BAC(1A) (introduced by the Finance Act, 2023 with effect from 01.04.2024) govern the manner of computing income-tax on total income for AY 2024-25.
  • Detailed extracts of Section 115BAC were set out, explaining:
    • Slab structures under the pre-amended and amended regime,
    • Conditions under Section 115BAC(2) regarding disallowance of certain exemptions and deductions,
    • Treatment of losses and depreciation, and
    • Options available to the assessee to opt in or opt out of the new regime (Section 115BAC(5) and Section 115BAC(6)).

The Ld. CIT(A) emphasized that Section 115BAC(1A) is concerned with computation of tax on “total income” at specified slab rates and with restricting certain exemptions and deductions, primarily under Section 10, Section 16, and Chapter VI-A (except certain specified sections).

4.2 Text and Scope of Section 87A

The Ld. CIT(A) then analyzed Section 87A, including the amended proviso applicable from AY 2024-25: