A groundbreaking ruling from the Income Tax Appellate Tribunal (ITAT) in Ahmedabad has delivered a potential victory for taxpayers, clarifying that the Section 87A rebate can be claimed on short-term capital gains (STCG) for the financial year 2024-25. This decision directly challenges the tax department’s system, which had been automatically denying these rebates.
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The ITAT’s Stance
The tribunal’s ruling is a significant win because it highlights a crucial detail in the law: for the current financial year, Section 87A does not explicitly prohibit a rebate on STCG. The ITAT pointed out that the current legislation doesn’t differentiate between regular income and special rate income (like STCG), which is taxed at a special rate under Section 111A.
Hope for Taxpayers
This verdict brings relief to many who were issued demand notices after their rebate claims were auto-denied by the Centralised Processing Centre (CPC) software. Taxpayers can now use this ruling as a basis to appeal their cases, file for a rectification under Section 154, or seek relief from the Commissioner (Appeals).
But, the Relief is Temporary
While this is great news for the financial year 2024-25, this window of opportunity is closing fast. Budget 2025 has introduced a major change, effective from the next assessment year (AY 2026-27). A new proviso will be added to Section 87A, explicitly stating that the rebate will not apply to any special rate income, including capital gains.
What This Means Going Forward
The ITAT ruling is a persuasive argument, but it’s not an immediate, binding precedent for all cases. The tax department may still challenge this decision in the High Court. Until a final verdict is reached, taxpayers may still face resistance from tax authorities.
In essence, if you are a taxpayer with STCG for FY 2024-25, this ruling provides a strong legal argument to claim your Section 87A rebate. However, be aware that from the next financial year onwards, this option will no longer be available.
