Rebate u/s 87A on STCG from Shares Allowed under New Tax Regime: CIT(A) directs JAO to Verify Claim Again [Read Order]

In a recent ruling, the Commissioner of Income Tax (Appeals) [ CIT(A) ] has ruled that a taxpayer is entitled to the rebate under Section 87A of Income Tax Act, 1961 on Short-Term Capital Gain ( STCG ) from shares under the new tax regime.

The appellant, an individual taxpayer, electronically filed her Return of Income (ITR-3) for the Assessment Year (A.Y.) 2024-25 on July 29, 2024, declaring a total income of Rs. 6,93,260. The return was processed by the Centralized Processing Center (CPC) under Section 143(1) of the Income Tax Act on September 19, 2024, accepting the declared income.

However, the CPC restricted the rebate under Section 87A to Rs. 10,250, disallowing the appellant's claim of Rs. 9,760 related to short-term capital gains. This decision increased the appellant’s tax liability by Rs. 9,760 and reduced the refund accordingly. The CPC did not provide any explanation for disallowing the short-term capital gain rebate.

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In response, the appellant filed an appeal under Section 246A of the Act on October 2, 2024, seeking a review of the disallowance.

The appellant's total income for the year included capital gains of Rs. 2,03,115, comprising Rs. 1,38,049 in long-term capital gains and Rs. 65,066 in short-term capital gains. The appellant did not opt for the provisions under Section 115BAC(6) and was thus governed by Section 115BAC(1A) for the year in question.

The appellant argued that since her total income did not exceed Rs. 7,00,000, she was eligible for the rebate under Section 87A, except for the long-term capital gains on equity shares, which are not eligible for the rebate under Section 112A(6). The appellant had claimed a rebate of Rs. 20,010, including Rs. 9,760 on short-term capital gains and not claimed on any long term capital gains.

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The sole issue raised in the appeal was the restriction of the rebate under Section 87A to Rs. 10,250 by the CPC, which resulted in an increased tax liability of Rs. 9,760. The appellant contended that the disallowance of the short-term capital gains rebate was incorrect, and no reasons were provided by the CPC for the same.

The CIT(A) reviewed the facts, including the appellant’s submissions and the relevant provisions of the Finance Act, 2023. The amendment in Section 87A provided that the rebate is applicable on total income chargeable to tax under Section 115BAC, subject to certain conditions.

The CPC had excluded Rs. 1,88,260 from the total income for the purpose of calculating the rebate, as it was chargeable at special rates. The CIT(A) found this restriction incorrect and directed the Jurisdictional Assessing Officer (JAO) to verify the appellant’s claim and allow the rebate in accordance with the provisions of the law.

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The First appellate authority observed that “The contention of the Appellant is prima-facie found to be genuine as the amendment through Finance Act, 2023 in respect of rebate u/s 87A of the Act, mentions total income chargeable to tax. The CPC has excluded the amount of Rs. 1,88,260/- (being the income chargeable at special rates) from the total income of the Appellant, while calculating the taxable income for the purpose of allowing rebate u/s 87A of the Act. The restriction made by the CPC with respect to the rebate u/s 87A of the Act is found to be not correct in the light of Appellant's detailed argument.”

In conclusion, the CIT(A) ruled in favor of the appellant, allowing the appeal and directing the JAO to allow the full rebate under Section 87A as per the applicable provisions. The appeal was thus allowed in the appellant's favor.

The order was shared by CA Kushal Fofaria through his social media profile.

To Read the full text of the Order CLICK HERE

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