Rebate u/s 87A allowable to STCG and LTCG Taxed under New Regime, Not Applicable on VDA Transfers: ITAT [Read Order]

The Indore Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that rebate under Section 87A is allowable against tax payable on Short-Term Capital Gains ( STCG ) under Section 111A and Long-Term Capital Gains ( LTCG ) under Section 112 under the new regime of Income Tax Act, 1961.

However, the tribunal clarified that rebate cannot be claimed against tax payable on income from transfer of Virtual Digital Assets (VDA) taxable. It rejected the claim of assessee.

The assessee, Kanhaiya Lal Panchal approached the appellate tribunal aggrieved by the action of the income tax department for not granting rebate. He filed his return for AY 2024-25 declaring total income of ₹4,15,620. It includes salary income, STCG, LTCG and other income, along with agricultural income.

He opted for taxation under the new regime under Section 115BAC and computed total tax liability at ₹22,536. He claimed the full rebate. Therefore, the tax payable by hims was ‘Nil’.

While processing the return under Section 143(1), the CPC accepted the income declared but restricted the rebate to ₹200. It did not allow the rebate to the extent of ₹22,336.

The assessee’s rectification application under Section 154 was rejected, and the CIT(A)-NFAC also denied relief. Thus, it appealed before the ITAT for relief.

Before the tribunal, the assessee’s representative, Kaide Kangsawala submitted the tax break up, where the total income was below Rs. 7 lakhs threshold. Therefore it is submitted that the assessee is entitled to get the rebate.

The Tribunal observed that the issue relating to STCG

111A and LTCG under Section 112 was already covered in favour of taxpayers by coordinate bench decisions in Jayshreeben Jayantibhai Palsana Shingala Sheri vs ITO and Venkedapathy Venugopal vs ITO.

In the matter of Jayantibhai Palsana Shingala Sheri vs ITO, which deals with the rebate under Section 111A, the ITAT observed that “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.”

Since no express restriction exists in Section 87A or Section 111A/112, the Tribunal held that rebate could not be denied merely because the gains were taxed at special rates.

Therefore, the bench of Paresh M. Joshi and B.M. Biyani directed the Assessing Officer to allow rebates on the STCG and LTCG components, granting a rebate of ₹22,291 (₹12 + ₹22,279).

However, on the VDA tax component of ₹45, the Tribunal noted that the assessee’s representative stated that the assessee was not pressing the rebate claim on VDA income.

Therefore, the appellate tribunal upheld denial of rebate to that limited extent and rejected the rebate claim on the VDA portion.

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