Ahmedabad Tribunal allows rebate against short term capital gains under new regime prior to Finance Act 2025 amendment

In case of Jayshreeben Jayantibhai Palsana ^[1]  (Taxpayer), the issue before the Ahmedabad Income Tax Appellate Tribunal (Tribunal) for tax year 2023-24 was whether rebate under Section (S.) 87A of the Income-tax Act 1961 (ITA) can be availed against tax payable on short term capital gains (STCG) under S.111A by the Taxpayer under new regime where taxable income less than INR0.7m comprised entirely of such STCG.

The Taxpayer, an individual filed her return for tax year 2023-24 offering STCG under S. 111A, long term capital gains under S. 112A and Income from other sources under new regime. The Taxpayer also claimed rebate under S. 87A as the total income earned by her was below the cap of INR0.7m for claiming rebate. The Centralised Processing Centre (CPC) processed the return disallowing rebate claimed by the Taxpayer. The First Appellate Authority upheld the disallowance by relying on Explanatory Memorandum (EM) to Finance Bill, 2025^[2]  to hold that the amendment made by Finance Act (FA) 2023 with effect from tax year 2025-26 onwards to deny the rebate against incomes chargeable at special rates is clarificatory in nature. 

Aggrieved by the same, the Taxpayer appealed further before Ahmedabad Tribunal which ruled in Taxpayer’s favor. 

The Tribunal ruled that it is true that the new regime of concessional rate of tax with higher rebate for income upto INR0.7m is subject to other provisions providing for special rates of tax. But such overriding nature is limited to computation of tax liability whereas rebate is allowed after the tax liability is computed. The provision granting rebate prior to Finance Act 2023 (FA 2023) amendment does not make distinction between normal incomes and special incomes like STCG under S.111A. In contrast, wherever legislature desired to deny rebate for special incomes, it has specifically provided so (for example, LTCG under s.112A). The amendment made by FA 2023 is prospective in nature and the EM cannot override the plain language of the statute. 

The Tribunal further held that automated denial of rebate by CPC without examining the merits of the claim is not sustainable. The Tribunal being a quasi-judicial authority is required to examine the claim on merits without being influenced by automated processing of CPC.

The Tribunal found the rebate claim to be valid based on the plan and unambiguous language of the law as applicable for tax year 2023-24. 

^[1] [2025] 177 taxmann.com 411 (Ahmedabad - Trib.)
^[2] Memorandum provides that rebate shall apply under new regime if the total income is less than INR 0.7m and such rebate shall not apply to tax on special rate incomes under Chapter XII such as capital gains under S.111A /S.112A