Taxpayer Entitles to Rebate u/s 87A where Income includes LTCG exceeding Rupees One Lakh: ITAT [Read Order]

The Surat Bench of the Income Tax Appellate Tribunal (ITAT) has held that a taxpayer is entitled to rebate under Section 87A of the Income Tax Act, 1961, where the total income, including Long-Term Capital Gains (LTCG), does not exceed the prescribed threshold, subject to the conditions under the statute.

The assessee filed a return of income declaring total income of ₹4,30,020 under the new tax regime under Section 115BAC(1A) of the Income Tax Act, 1961. The income included LTCG of ₹1,30,020 arising from the sale of immovable property, chargeable to tax under Section 112 of the Income Tax Act, 1961. Since the total income was below ₹7,00,000, the assessee claimed rebate of ₹25,000 under Section 87A of the Income Tax Act, 1961 against the tax payable on LTCG.

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However, while processing the return under Section 143(1) of the Income Tax Act, 1961, the Central Processing Centre (CPC), Bengaluru accepted the returned income but denied the rebate under Section 87A of the Income Tax Act.

The Authorised Representative (AR) for the assessee submitted that Section 87A of the Income Tax Act, 1961 does not bar rebate where income includes LTCG taxable under Section 112. It was contended that since the assessee opted for the new tax regime under Section 115BAC(1A) and the total income did not exceed ₹7,00,000, the assessee was duly eligible for rebate under Section 87A of the Income Tax Act.

The Departmental Representative (DR), relying on the orders of the lower authorities, submitted that in view of Section 112A(6) of the Income Tax Act, 1961, rebate under Section 87A of the Income Tax Act is not admissible in respect of LTCG exceeding ₹1,00,000. It was argued that the CPC had correctly denied the rebate.

A Bench comprising Suchitra Kamble, Judicial Member, observed that Section 112A(6) of the Income Tax Act, 1961 provides that where total income includes LTCG referred to in Section 112A(1) of the Income Tax Act, rebate under Section 87A of the Income Tax Act shall be allowed from income tax on the total income as reduced by tax payable on such capital gains.

The Tribunal held that the provision clearly indicates that rebate under Section 87A is allowable even where income includes LTCG, subject to computation of tax on such capital gains. It further clarified that the restriction applies to tax computed on LTCG and not to the entire LTCG per se, and in the present case, the threshold condition for denial was not met.

“The assessee is entitled to claim the rebate where the assessee’s income includes LTCG. The interpretation of section 112A(6) of the Act is that the amount of income tax calculated on such LTCG exceeding Rs.1,00,000/- @ 10% fails in the assessee’s case, as the assessee declared LTCG of Rs.2,76,858/-, but the amount of income tax calculated on such LTCG does not exceed Rs.1,00,000/- threshold as it is not the entire LTCG which has to be taken into account but the tax on that entire capital gain (LTCG)” the Bench noted.

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