Recent decisions by the Income Tax Appellate Tribunal in various cities have bolstered taxpayers’ claims for full rebate under Section 87A on short-term capital gains taxed under Section 111A, signalling a shift in legal interpretation and potential relief for taxpayers affected by processing reductions.
Taxpayers facing disallowance of the Section 87A rebate on short-term capital gains under Section 111A are finding increasing support from the Income Tax Appellate Tribunal, with benches in several cities taking a similar view that the law for assessment years 2024-25 and 2025-26 did not expressly bar the relief. The latest decisions suggest that where a resident individual under the new tax regime stayed within the income threshold and otherwise met the conditions for the rebate, the tax department could not deny it simply because part of the income was taxed at a special rate.
That has become important because processing by the Centralised Processing Centre has often trimmed the rebate, creating extra demands for taxpayers who had correctly reported their gains. In cases reported from Jaipur and Delhi, the tribunal upheld claims for the full Section 87A rebate against tax on short-term capital gains, relying on earlier decisions that read the statute as it then stood. In one Delhi case for assessment year 2025-26, the tribunal also accepted the argument that the restriction later introduced by the Finance Act 2025 would apply only from assessment year 2026-27.
The reasoning has been consistent: Section 87A referred to tax on total income, while Section 111A set the rate for specified short-term capital gains but did not, in those years, contain an express exclusion from rebate. Several tribunal rulings have contrasted this with Section 112A, where Parliament had already written a specific limitation into the law for certain long-term capital gains. On that reading, the absence of similar wording for Section 111A was decisive.
That approach was reinforced in Mumbai and Nagpur. Reports on the Mumbai ruling in Pushpa Prakash Misar said the bench accepted that there was no statutory prohibition for Section 87A relief on Section 111A gains for assessment year 2024-25, and the Nagpur Bench in Bina Pradeep Malli has now directed the Assessing Officer to allow the rebate as well. The developing tribunal trend means taxpayers who received reduced rebates or raised demands may have grounds to seek rectification or challenge the adjustment, depending on the stage of the case.
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