Income Tax

ITAT Delhi Allows Full Section 87A Rebate Against STCG Under Section 111A for AY 2025-26

Published 11 Sept 2026· 7 min read

The Story

Renu Singla’s return for AY 2025-26 should have been routine. Filed under the new tax regime, total income declared at ₹5,73,610 — comfortably under the ₹7 lakh threshold that unlocks a full Section 87A rebate — with income from house property, other sources, and short-term capital gains from equity shares taxed under Section 111A. She claimed the rebate of ₹25,000 against her entire tax liability, including the portion attributable to that STCG.

The CPC saw it differently. When processing the return under Section 143(1), it carved the STCG-attributable tax out of the rebate calculation entirely, cutting the rebate from ₹25,000 down to ₹3,500 and raising a demand of ₹25,840 including interest. The CIT(A)/NFAC agreed with the CPC in an order dated 14 March 2026, and the matter went up to the Delhi ITAT.

Sidebar: there’s a wrinkle in the ITAT’s own order worth flagging plainly rather than glossing over. The order states total income of ₹5,73,610 but separately records the STCG component as ₹20,36,155 — figures that can’t both be right, since the STCG alone would then dwarf the stated total income several times over. TaxGuru’s own published commentary on the order flags this and suggests the intended STCG figure was likely closer to ₹2,03,615. This doesn’t change the Tribunal’s legal reasoning, which turns on a pure question of statutory interpretation rather than the exact rupee figures — but anyone relying on this order for a client’s own computation should pull the actual assessment record rather than the headline numbers.

The legal question was narrow and, on the Tribunal’s reading, not close. The first proviso to Section 87A — inserted by the Finance Act, 2023 with effect from AY 2024-25 — grants the rebate to a resident individual taxed under Section 115BAC(1A) whose total income doesn’t exceed ₹7 lakh, capped at ₹25,000 or the actual tax payable, whichever is lower. Nothing in that language, as it stood for AY 2025-26, carved out income taxed at special rates under Section 111A. That carve-out arrived later — inserted by the Finance Act, 2025, and made explicitly prospective from AY 2026-27.

The Tribunal leaned on two coordinate-bench decisions already running in the taxpayer’s favour on this exact point: the Ahmedabad ITAT’s ruling in Jayshreeben Jayantibhai Palsana v. ITO, and the Delhi ITAT’s own ruling in Manan Anand v. ITO. Both had already held that an Explanatory Memorandum to a Finance Bill cannot be used to read a restriction into a statute before Parliament actually legislated it. Following that line, the Tribunal set aside the CIT(A)’s order and the CPC’s intimation, restored the full ₹25,000 rebate, and deleted the resulting demand.

Why It Matters

This ruling lands squarely in the middle of the current assessment cycle for AY 2025-26 — meaning any individual taxpayer who filed under the new regime with capital-market income and got an unexpected demand after a CPC intimation restricting their Section 87A rebate has a directly on-point, favourable Tribunal position to point to, right now, not as an abstract precedent from years past. It’s also a useful illustration of a recurring problem: a return-processing utility applying a rule that Parliament hadn’t yet enacted for the year in question, apparently by importing logic meant for a later assessment year. For a readership that extends well beyond CA practitioners to any individual investor or salaried taxpayer filing their own return, this is a concrete, checkable fact pattern.

Key Takeaways

For AY 2025-26, the first proviso to Section 87A (as inserted by the Finance Act, 2023, effective AY 2024-25) grants the rebate to a resident individual under the new regime with total income up to ₹7 lakh, without excluding tax attributable to STCG taxed under Section 111A.
The exclusion of special-rate income (including Section 111A STCG) from the Section 87A rebate was introduced only by the Finance Act, 2025, and applies prospectively from AY 2026-27 — it cannot be read back into AY 2024-25 or AY 2025-26 returns.
A CPC intimation under Section 143(1) that applies a restriction Parliament had not yet enacted for the relevant assessment year is liable to be set aside, following the coordinate-bench rulings in Jayshreeben Jayantibhai Palsana (ITAT Ahmedabad) and Manan Anand (ITAT Delhi).
An Explanatory Memorandum to a Finance Bill, or an administrative/return-processing understanding, cannot override the plain statutory language actually in force for the assessment year being processed.
The ITAT’s own order contains an apparent numerical inconsistency between the stated total income and the stated STCG figure — practitioners relying on this order should verify the actual figures from the underlying return and computation rather than the order’s headline numbers.

Practical Implications

Individual taxpayers (and the professionals advising them) who filed AY 2025-26 or AY 2024-25 returns under the new regime with STCG under Section 111A, and received a CPC intimation restricting their Section 87A rebate, now have a directly on-point basis to seek rectification under Section 154 or to appeal the intimation, citing this ruling alongside Jayshreeben Jayantibhai Palsana and Manan Anand. Advisors should specifically check whether a client’s total income (inclusive of the STCG) still falls within the ₹7 lakh threshold before assuming the rebate applies — the ruling doesn’t expand who qualifies for the rebate, only confirms that qualifying taxpayers aren’t denied it merely because part of their income is STCG. For AY 2026-27 onward, the Finance Act 2025 exclusion is now in force and this reasoning will not apply — advisors should not extend this ruling’s benefit to current-year computations.

Action Checklist

Identify any client (or your own return, if self-filed) for AY 2024-25 or AY 2025-26 where a Section 87A rebate was restricted or denied by a CPC intimation on account of STCG under Section 111A.
Verify total income remains within the ₹7 lakh threshold under the first proviso to Section 87A before pursuing a rectification or appeal on this basis.
File a rectification application under Section 154 citing this ruling, or pursue the matter in appeal if the rectification route has already been exhausted or is time-barred.
For AY 2026-27 return preparation going forward, apply the Finance Act 2025 exclusion correctly — do not extend this ruling’s reasoning to the current assessment year.
Where relying on this order in submissions, independently verify the actual income and STCG figures from the return and computation sheet rather than the order’s own stated figures, given the disclosed inconsistency.

Relevant Sections / Rules / Notifications

Section 87A, Income-tax Act, 1961 — rebate for resident individuals; first proviso inserted by the Finance Act, 2023, effective AY 2024-25.
Finance Act, 2025 — inserted the exclusion of special-rate income from the Section 87A rebate, effective prospectively from AY 2026-27.
Section 111A, Income-tax Act, 1961 — special-rate taxation of short-term capital gains on listed equity shares/units.
Section 115BAC(1A), Income-tax Act, 1961 — the default new tax regime for individuals.

FAQs

Q: Does this ruling mean Section 87A rebate can be claimed against STCG under Section 111A for AY 2026-27 as well? A: No. The Finance Act, 2025’s exclusion of special-rate income from the Section 87A rebate is explicitly prospective from AY 2026-27. This ruling applies only to AY 2024-25 and AY 2025-26, before that exclusion took effect.

Q: If a taxpayer’s CPC intimation already restricted the rebate and the time limit for rectification under Section 154 has passed, is there any remedy left? A: If the rectification window has lapsed, the taxpayer would need to pursue the matter through the regular appellate channel (CIT(A), and thereafter ITAT) if that route remains open, or examine whether a condonation of delay application is available on the facts. This is a fact-specific question that should be assessed against the specific dates involved in each case.

Q: Does the ₹7 lakh threshold for Section 87A eligibility include the STCG income itself? A: Yes — the threshold is based on total income, which includes STCG under Section 111A. This ruling does not change that; it only confirms that once total income (including STCG) is within ₹7 lakh, the rebate cannot be selectively denied against the STCG-attributable portion of the tax for the relevant years.

Internal Links

Income Tax/Case Law hub — /category/income-tax/

New Income Tax Regime — A Complete Guide (admin.finoscape.com) — general background on the new regime; does not address this specific STCG/Section 87A dispute.
New Tax Regime vs. Old Tax Regime: What Should Employees Choose? (admin.finoscape.com) — general comparison; does not address this specific dispute.

Author & Disclaimer

Prepared by Finoscape Editorial Team — hello@finoscape.com. This article is for general informational purposes and does not constitute legal or professional advice, and is based on TaxGuru’s full reproduction of the ITAT Delhi order, which itself discloses an apparent numerical inconsistency between the stated total income and STCG figures. Practitioners should independently verify the order and underlying computation before citing it in client advice or submissions.