After STCG ruling, now LTCG also allowed to get Section 87A tax rebate, rules ITAT Chennai

Amitabh Shukla, an accountant member of the Income Tax Appellate Tribunal, Chennai bench, has allowed Section 87A tax rebate to be claimed on long term capital gains (LTCG). This is a very significant decision since the Section 87A rebate wasn’t available for any special rate income like like short-term capital gains, LTCG, and others since April 1, 2025, as announced in Budget 2025 by the finance minister. While pronouncing this judgement, special emphasis was given to the Bombay High Court’s decision in the case of Rajiv G Shah (WP No.3193 of 2022).

For those who might not know, Section 87A provides a tax rebate for resident individuals earning up to Rs 7 lakh under the new tax regime or up to Rs 5 lakh under the old tax regime for FY 2024-25. You can claim a maximum tax rebate of Rs 25,000 under the new tax regime and Rs 12,500 under the old tax regime. For FY 2025-26, the Section 87A tax rebate increases to Rs 60,000 under the new tax regime for incomes up to Rs 12 lakh.

ITAT Chennai said: “We have noted that Hon’ble Bombay High Court in the case of Rajiv G Shah supra has held that “…there is no indication in the plain language of Section 87A that any category of income or tax should be excluded from the computation. If the total income is within the threshold prescribed, rebate cannot be denied. …”. It is trite law that when provisions of the statute granting any benefit to the tax payer are unambiguously clear, no different interpretation thereof can be adopted. Accordingly, we are of the view that the assessee is entitled for claim of rebate under Section 87A.”

What is the background of this case?

According to ITAT Chennai order dated August 20, 2025, here’s a quick summary of the case:

• Venkatraman, a taxpayer from Tamil Nadu, filed his Income Tax Return (ITR) for AY 2024-25 under the new tax regime and declared his total income as Rs 4.97 lakh including LTCG. He claimed Section 87A tax rebate of Rs 12,500.
• The Centralised Processing Centre (CPC) of the tax department had denied the Section 87A rebate to him holding that long-term capital gains which is taxable at special rates is not eligible for rebate under Section 87A. He then filed an appeal with the Commissioner of Appeals (CIT A).
• The Commissioner of Appeals CIT(A) concurred with the findings of CPC and dismissed the appeal.

Chennai ITAT says provisions of Section 87A do not provide for such an exclusion of income

According to ITAT Chennai order dated August 20, 2025, here’s what the tribunal said:

• It has been concluded that to claim the rebate (Section 87A), total income is to be computed after excluding any special rate income so as to determine the final tax liability.
• We have noted that the view taken by the CIT(A) of the assessee filing return under Section 115BAC (new tax regime) and consequently ineligible for rebate is not in order.
• The only controversy in this case is whether rebate under Section 87A is available on all the incomes or there is any exclusion. We have noted that the provisions of section 87A do not provide for such an exclusion. The first proviso to section 87A includes an exemption qua total income falling u/s 115BAC (1A) however the impugned amendment has been brought by Finance Act 2024 w.e.f 01.04.2025. The present AY-2024- 25 would not be hit by the same.

Also read: Taxpayers can now claim 87A tax rebate on special income as ITR utility software has been fixed; but it's subject to disputes and litigations

Judgement: “It is trite law that when provisions of the statute granting any benefit to the tax payer are unambiguously clear, no different interpretation thereof can be adopted. Accordingly, we are of the view that the assessee is entitled for claim of rebate u/s 87A. The orders of lower authorities are therefore set aside and the Ld.AO is directed to allow the assessee its claim of rebate under Section 87A. All the grounds of appeal raised by the assessee are therefore allowed. In the result, the appeal of the assessee is allowed. Order pronounced on 20th, Aug-2025 at Chennai.”

Mihir Tanna, associate director, S.K Patodia LLP, says: “Series of judgments allowed Section 87A tax rebate against special rate income [short term gain on sale of STT paid shares/MF, long term capital gain (other than sale of STT paid shares/MF)]. Though, this ITAT Chennai Judgment provides relief to appellant (Venkatachalam), it is not likely to benefit other taxpayers, till the time system of income tax department is not updated. Benefit of 87A tax rebate will be continued to be denied in FY 2023-24 and FY 2024-25 and small taxpayers will not prefer to spend money on litigation considering the quantum of tax relief.”

Also read: 87A and STCG: Will recent ITAT ruling on Section 87A allow taxpayer to claim 87A rebate on Short term capital gains while filing ITR?

Section 87A tax rebate allowed on STCG income by ITAT Ahmedabad for AY 2024-25

Judicial member, Suchitra R. Kamble and Accountant Member Makarand V. Mahadeokar from ITAT Ahmedabad said in an order dated August 12, 2025:

• "…we find that the assessee is a resident individual and the total income declared for the assessment year 2024–25 does not exceed Rs 7,00,000. It is also an admitted position that the assessee has exercised the option to be assessed under the new tax regime in accordance with the provisions of section 115BAC(1A).
• "On a plain reading of the statutory provisions, there exists no express bar either in section 87A or section 111A for denial of rebate in respect of tax payable on short-term capital gains (STCG) arising from transfer of listed equity shares taxable at special rates under section 111A."
• "The legislative intent is further clarified by the subsequent amendment proposed in the Finance Bill, 2025, which is prospective in nature and thereby reinforces that no such restriction was in force during the relevant assessment year."
• "The denial of rebate under Section 87A by the CPC, Bengaluru, appears to be based solely on system-driven logic and not on any statutory mandate. Moreover, the interpretation adopted by the CIT(A) in upholding such denial is, in our considered view, not in consonance with the plain and unambiguous language of the law as applicable for A.Y. 2024–25."

Also read: Section 87A tax rebate can be claimed for short term capital gains income under new tax regime, rules ITAT Ahmedabad

Akhil Chandna, Partner & Global People Solutions Leader, Grant Thornton Bharat, says:

• Based on the recent ruling by ITAT Ahmedabad, the resident taxpayers should be eligible to claim the rebate u/s Section 87A even on short-term capital gains (STCG) taxed u/s 111A, provided their total income does not exceeds Rs 5 lakh under the old tax regime and Rs 7 lakh under the new tax regime for FY 2024-25.
• The tribunal emphasized that Section 87A does not contain any express exclusion for STCG. Unlike Section 112A(6), which explicitly bars rebate on long-term capital gains (LTCG), Section 111A has no such restriction. The absence of a statutory bar must be interpreted in favour of the taxpayer. Further, this interpretation aligns with prior appellate decisions and the Bombay High Court’s stance that procedural denials by CPC cannot override substantive statutory rights.