Section 87A rebate on STCG: ITAT ruling offers relief to taxpayers under new tax regime for AY 2025-26

In a recent ruling, the Delhi Income Tax Appellate Tribunal (ITAT) ruled in favour of a taxpayer who was initially denied a Section 87A rebate on short-term capital gains (STCG) under the new tax regime.

The ruling is significant as it provides clarity for taxpayers filing returns for Assessment Year (AY) 2025-26. It could also offer an important avenue for taxpayers facing similar tax-related disputes in the future.

Here is a look at the key facts of the case and what the ruling means for taxpayers.

Why did the Income Tax Department deny the rebate?

According to the case records, the assessee, Renu Singla, had declared a total income of ₹5,38,610. Her income included ₹3,51,701 from house property, ₹18,290 from other sources and ₹20,36,155 in short-term capital gains (STCG) taxable under Section 111A. However, her total income was assessed at ₹5,73,610 after adjustments made during processing.

During processing under Section 143(1), the Centralised Processing Centre (CPC) restricted her Section 87A rebate from ₹25,000 to ₹3,500, excluding the tax payable on her STCG. This resulted in an additional tax demand of ₹25,840, along with interest.

Singla, a resident of Gurugram, subsequently challenged the adjustment before the Delhi ITAT.

ITAT allows the full rebate of ₹25,000

After examining the facts, the tribunal held that the full Section 87A rebate was available against tax on STCG taxable under Section 111A for AY 2025-26, provided the taxpayer’s total income did not exceed the applicable ₹7 lakh threshold and the new tax regime was opted for.

The final order was passed on September 9, 2026.

The assessee’s representatives argued that the restriction on the rebate for income taxable at special rates was introduced by the Finance Act, 2025, with effect from AY 2026-27. The tribunal agreed, noting that the law applicable for AY 2025-26 did not exclude income taxable under Section 111A from the Section 87A rebate.

The ITAT also relied on earlier decisions, including Mana Anand v ITO and Jayshreeben Jayantibhai Palsana v ITO, which supported the taxpayer’s position.

Consequently, the tribunal set aside the Section 143(1) intimation, allowed the full ₹25,000 rebate and deleted the ₹25,840 tax demand.

What taxpayers should know

The ruling is relevant for taxpayers whose total income for AY 2025-26, including eligible STCG, fell within the ₹7 lakh threshold under the new tax regime.

The restriction introduced by the Finance Act, 2025 applies from AY 2026-27 onwards.

Taxpayers who received similar rebate adjustments for AY 2025-26 may consider seeking rectification or professional advice after reviewing their tax records and the specific facts of their case.

The ruling also highlights the importance of understanding the applicable assessment year and the tax provisions in force when filing income tax returns.

Where to check the ITAT order

The complete ruling can be checked on the official website of IATA at https://itat.gov.in/judicial/casestatus from the following details:

Appeal No: ITA 5416/DEL/2026

Assessment Year: [2025-26]

The detailed case status link: https://itat.gov.in/judicial/casedetails?cid=F8tUPbNJsulpisc7dODIsulpcEvKPbFRj2haA=::bHc5dSs5Mm5sVWR4OFFpbEdUUHY2UT09

Disclaimer: This article is based on the ITAT order available on the official ITAT website. Due care has been taken to ensure accuracy; however, readers should verify the applicable tax provisions and seek professional guidance before taking any tax-related action.