What is the rebate under Section 87A of the Income Tax Act?

Section 87A provides a rebate of up to Rs 25,000 (or 100% of tax payable, whichever is lower) for assessee whose total income does not exceed the prescribed threshold for the relevant assessment year.

Can a CBDT circular restrict the benefit of Section 87A?

The Tribunal held that a CBDT circular cannot impose a substantive restriction that is not found in the statute; therefore, the circular cannot deny the rebate where the statute does not expressly exclude it.

Do amendments made by the Finance Act apply retrospectively to earlier assessment years?

Amendments that are expressly made prospective, such as the Finance Act, 2025 amendment to Section 87A effective from 1 April 2026, cannot be applied to assessment years prior to that date, as that would be an unlawful retrospective application.

Section 87A Rebate Allowed on STCG u/s 111A for AY 2025-26 | Rebate Not Excluded : ITAT Ahmedabad

The Income Tax Appellate Tribunal in Ahmedabad clarified that, for Assessment Year 2025-26, the rebate under Section 87A of the Income Tax Act cannot be denied merely because a portion of total income is chargeable to tax at the special rate under Section 111A. The decision rejects the Addl. CIT(A)’s reliance on a CBDT circular and underscores that prospective legislative amendments cannot be applied retrospectively.

Background & Facts

The Dispute

The appellant, Kajol Patel, an assessee, filed her return of income for AY 2025-26 on 15.09.2025, disclosing total income of Rs 6,95,720. This total included Short-Term Capital Gain (STCG) of Rs 1,54,411 chargeable at the special rate under Section 111A. The assessee claimed the maximum rebate of Rs 25,000 under Section 87A. The assessing officer, using the CPC, limited the rebate to Rs 12,066, excluding the tax attributable to the STCG component.

Key Facts

Return of income filed: 15.09.2025
Total income disclosed: Rs 6,95,720
STCG component: Rs 1,54,411 (taxed under Section 111A)
Rebate claimed under Section 87A: Rs 25,000
CPC intimation limited rebate to: Rs 12,066
CBDT Circular No. 13/2025 dated 19.09.2025 was relied upon by the Addl. CIT(A)
Finance Act, 2025 amendment to Section 87A became effective on 01.04.2026 (applicable to AY 2026-27)
Precedent: Jayshreeben Jayantibhai Palsana v. ITO (ITA No.1014/Ahd/2025) dated 12.08.2025
Precedent: The Chamber of Tax Consultants v. Director General of Income-tax (Systems) & Ors. (2024) 169 taxmann.com 506

Procedural History

15.09.2025: Return of income filed by the assessee
Date not specified: CPC processed return under Section 143(1) and issued intimation restricting rebate to Rs 12,066
16.03.2026: Addl. CIT(A) dismissed the appeal and confirmed the restriction, relying on CBDT Circular No. 13/2025
10.08.2026: Second appeal heard before the Income Tax Appellate Tribunal, SMC Bench, Ahmedabad
01.09.2026: Tribunal pronounced its order, allowing the appeal

Relief Sought

The appellant sought:

Full allowance of the rebate of Rs 25,000 under Section 87A for AY 2025-26
Set-aside of the CPC intimation that limited the rebate
Re-computation of tax liability reflecting the full rebate
Refund of any excess tax paid, if applicable

The Legal Issue

Whether, for Assessment Year 2025-26, the rebate prescribed under the first proviso to Section 87A of the Income Tax Act can be denied to the extent that the tax liability includes tax payable on Short-Term Capital Gains taxed under Section 111A, in the absence of an express statutory exclusion and notwithstanding reliance on a CBDT circular or a prospective amendment enacted by the Finance Act, 2025.

Arguments Presented

For the Appellant

The statute contains no express embargo on granting the Section 87A rebate against tax on STCG; therefore the rebate must be allowed in full.
Administrative circulars, including CBDT Circular No. 13/2025, cannot curtail a substantive statutory benefit.
The amendment to Section 87A made by the Finance Act, 2025 is prospective and cannot be applied retrospectively to AY 2025-26.
The maxim expressio unius est exclusio alterius supports the view that the legislature intended to exclude only Long-Term Capital Gains under Section 112A, not STCG under Section 111A.
Precedents such as Jayshreeben Jayantibhai Palsana v. ITO and the Bombay High Court decision affirm that the rebate cannot be denied merely because the return-processing utility excludes it.

For the Respondent

The Respondent relied on CBDT Circular No. 13/2025, which directed that the rebate be denied where tax on STCG is payable.
It argued that the CPC’s interpretation, consistent with the circular, was a valid administrative construction of the statute.
The Respondent contended that allowing the rebate would result in a double benefit, as the tax on STCG is already taxed at a special rate.

The Court's Analysis

The Tribunal began by reproducing the first proviso to Section 87A and observed that, for AY 2025-26, the total income of Rs 6,95,720 was below the Rs 7,00,000 threshold, making the assessee eligible for a rebate of the lesser of the tax payable or Rs 25,000. The Tribunal noted that the statutory language did not contain any express exclusion of income chargeable to tax at the special rate under Section 111A.

"The statutory language, as applicable for the year under consideration, did not contain any express exclusion of income chargeable to tax at the special rate under section 111A."

The Tribunal emphasized the well-settled principle that administrative circulars cannot impose substantive restrictions not found in the statute. It held that the CBDT circular merely clarified procedural aspects and could not override the clear legislative intent.

Further, the Tribunal examined the amendment effected by the Finance Act, 2025, which inserted a proviso to Section 87A effective from 01.04.2026 (AY 2026-27). Applying this amendment to AY 2025-26 would constitute an unlawful retrospective application, contrary to the constitutional principle against retrospective legislation.

The maxim expressio unius est exclusio alterius was applied to interpret the existing proviso, which expressly excludes only tax payable on Long-Term Capital Gains under Section 112A. The omission of Section 111A from this exclusion indicates legislative intent to permit the rebate for STCG in the year in question.

The Tribunal also relied on the earlier ITAT decision in Jayshreeben Jayantibhai Palsana v. ITO (order dated 12.08.2025), which held that there is no statutory bar to granting the rebate where tax is payable on STCG. The Bombay High Court’s reasoning in The Chamber of Tax Consultants v. Director General of Income-tax (Systems) & Ors. reinforced that a statutory rebate cannot be withdrawn merely by a change in the departmental utility.

Consequently, the Tribunal concluded that the Addl. CIT(A)’s reliance on the CBDT circular and its denial of the rebate were erroneous. The correct approach is to allow the full rebate of Rs 25,000, delete the demand raised in the CPC intimation, and direct recomputation of tax liability.

The Verdict

The appeal is allowed. The Tribunal directs the Assessing Officer to allow the full rebate of Rs 25,000 under Section 87A for AY 2025-26, delete the demand raised in the CPC intimation dated 16.03.2026, and recompute the tax liability accordingly. Any excess tax paid must be refunded as per law. The order dated 16.03.2026 is set aside.

What This Means For Similar Cases

Statutory Rebates Cannot Be Curtailed by Circulars

Practitioners must argue that a CBDT or departmental circular cannot override a clear statutory benefit.
When a rebate or exemption is statutorily provided, the burden is on the assessing authority to show an express legislative exclusion.

Prospective Amendments Are Not Retrospective

Amendments to tax provisions that become effective from a future date cannot be applied to assessment years preceding that date.
Counsel should highlight the effective date of any Finance Act amendment when challenging retrospective application.

Expressio Unius Guides Interpretation

If a proviso expressly excludes a particular class of income (e.g., LTCG under Section 112A), the omission of another class (e.g., STCG under Section 111A) signals legislative intent to include it.
Drafting of relief claims should reference the exact language of the statute to demonstrate inclusion.

Section 87A Rebate Allowed on STCG u/s 111A for AY 2025-26 | Rebate Not Excluded : ITAT Ahmedabad