Section 87A Rebate on STCG under Section 111A – Ready-to-Use Application before the Assessing Officer
[A Practical Draft for Taxpayers and Tax Professionals]
The controversy surrounding the availability of rebate under Section 87A against tax payable on Short-Term Capital Gains (STCG) chargeable under Section 111A has generated considerable discussion among taxpayers and professionals.
For AY 2024-25, the statutory provision of Section 87A permitted a resident individual, whose total income did not exceed ₹7 lakh and who was governed by Section 115BAC(1A), to claim rebate of income-tax payable, subject to the prescribed ceiling. The provision, as it then stood, did not expressly exclude tax payable on STCG taxable under Section 111A.
The issue became particularly relevant where the return of income correctly disclosed the capital gains and the total income was within the prescribed limit, but the rebate under Section 87A was restricted while processing the return.
A series of decisions of different Benches of the Income Tax Appellate Tribunal (ITAT) have examined this issue. Importantly, the reasoning adopted in these decisions is substantially based on the language of the statute itself. The Tribunal has observed that where Parliament intended to place a specific restriction on the rebate in respect of a particular category of capital gains, such restriction was expressly provided in the law. No similar express restriction existed in Section 87A in respect of STCG chargeable under Section 111A for the relevant assessment years.
The Nagpur Bench of the ITAT, in Bina Pradeep Malli v. ITO, ITA No. 414/NAG/2026, order dated 07.08.2026, also considered the issue and directed that the eligible rebate under Section 87A be granted in respect of tax payable on STCG under Section 111A.
Further, the Finance Act, 2025 introduced a specific restriction in Section 87A, applicable from 1 April 2026. This amendment assumes significance while examining the legal position for earlier assessment years, as the restriction was not part of the provision applicable to AY 2024-25 and AY 2025-26.
In view of the above judicial developments, taxpayers who have faced denial or restriction of the Section 87A rebate in respect of STCG under Section 111A may need to make an appropriate representation/application before the concerned tax authority, depending upon the stage of proceedings.
With this objective, the following ready-to-use draft application is being provided for the benefit of taxpayers and tax professionals. The draft may be suitably modified according to the facts of each case, the assessment year involved, the nature of the intimation/order, and the procedural remedy available.
[Important: This draft is intended as a practical reference and should not be treated as a substitute for examination of the individual facts and the law applicable to the relevant assessment year].
APPLICATION FOR ALLOWING REBATE UNDER SECTION 87A IN RESPECT OF TAX PAYABLE ON STCG CHARGEABLE UNDER SECTION 111A
[Ready-to-use Draft for Taxpayers / Tax Professionals]
[The application may be suitably adapted to the facts and procedural stage of the particular case].
DRAFT APPLICATION
To,
The Assessing Officer,
[Ward / Circle]
Income Tax Department
[City]
Subject: Application for allowing rebate under Section 87A of the Income-tax Act, 1961 against tax payable on Short-Term Capital Gain chargeable under Section 111A – A.Y. [2024-25 / 2025-26] – PAN: [________]
Respected Sir/Madam,
The Applicant respectfully submits this application seeking allowance of rebate under Section 87A of the Income-tax Act, 1961 (“the Act”) against the income-tax payable on the total income, including Short-Term Capital Gain chargeable to tax under Section 111A of the Act.
The issue has already been examined by various Benches of the Hon’ble Income Tax Appellate Tribunal, including the Nagpur Bench in the Applicant’s own jurisdiction in the case of Bina Pradeep Malli v. ITO, ITA No. 414/NAG/2026, order dated 07.08.2026, wherein the Hon’ble Tribunal directed the Assessing Officer to grant the rebate under Section 87A.
The relevant facts and legal position are submitted hereunder.
1. Brief facts of the case
1.1. The Applicant is an individual and a resident of India.
1.2. The Applicant furnished the return of income for Assessment Year [2024-25 / 2025-26] declaring total income of ₹ [________].
1.3. The total income included Short-Term Capital Gain of ₹ [________] arising from transfer of listed equity shares / units, which was chargeable to tax at the special rate prescribed under Section 111A of the Act.
1.4. The Applicant was governed by the provisions of Section 115BAC(1A) of the Act and the total income was within the prescribed threshold of ₹7,00,000 for the relevant assessment year.
1.5. Accordingly, the Applicant claimed rebate under Section 87A against the income-tax payable on the total income.
1.6. However, while processing the return / while completing the assessment / while giving effect to the return, the rebate under Section 87A has been restricted to the tax payable on regular income and has not been allowed against the tax payable on Short-Term Capital Gain chargeable under Section 111A.
1.7. Consequently, tax demand of ₹ [________] has arisen.
The Applicant respectfully submits that the aforesaid restriction is not sustainable under the provisions of the Act as applicable to the relevant assessment year.
2. Statutory provision applicable to the relevant assessment year
Section 87A, as amended by the Finance Act, 2023 with effect from 1 April 2024, provided, inter alia, that where the total income of an eligible resident individual was chargeable to tax under Section 115BAC(1A) and did not exceed ₹7,00,000, the assessee was entitled to a deduction from the amount of income-tax payable on such total income, subject to the prescribed limit.
The relevant statutory language referred to:
“the amount of income-tax … on his total income”
There was no express exclusion in Section 87A, as applicable for A.Y. 2024-25 or A.Y. 2025-26, in respect of tax payable on Short-Term Capital Gains chargeable under Section 111A.
Equally importantly, Section 111A did not contain any provision denying the benefit of Section 87A.
3. The Act itself demonstrates that where Parliament intended to restrict Section 87A, it expressly provided so
This is perhaps the most important aspect of the matter.
The Income-tax Act contains a specific provision in Section 112A(6) dealing with Long-Term Capital Gains covered by Section 112A.
Section 112A(6) specifically provides for reduction of the amount of tax on total income for the purpose of allowing the rebate under Section 87A.
Thus, Parliament was fully conscious of the interaction between special-rate capital gains and Section 87A.
However, no corresponding restriction was provided in Section 111A for Short-Term Capital Gains.
The principle is well established:
When the legislature has expressly provided an exclusion in one provision, an identical exclusion cannot be supplied by interpretation in another provision where the legislature has consciously not provided it.
Therefore, in the absence of an express statutory prohibition, the benefit available under Section 87A cannot be denied merely because a portion of the total income is taxable under Section 111A.
4. Section 111A prescribes the rate of tax; it does not prohibit rebate under Section 87A
Section 111A is a charging/rate provision which prescribes the rate at which specified Short-Term Capital Gains are taxable.
It does not state that:
“tax payable under this section shall not be reduced by rebate under Section 87A.”
Had Parliament intended such a restriction, it could have expressly provided the same.
The mere fact that Section 111A prescribes a special rate does not, by itself, create a statutory prohibition against a rebate otherwise available under Section 87A.
The two provisions operate in different fields:
• Section 111A determines the rate of tax applicable to specified Short-Term Capital Gains; and
• Section 87A provides a rebate from income-tax payable by an eligible resident individual satisfying the prescribed conditions.
There is no conflict between the two provisions.
5. Subsequent amendment by Finance Act, 2025 is prospective
The subsequent legislative amendment makes the position even clearer.
The Finance Act, 2025 amended Section 87A with effect from 1 April 2026 and inserted a further proviso restricting the rebate to the amount of income-tax payable as per the rates provided under Section 115BAC(1A).
The amendment therefore operates from A.Y. 2026-27 onwards.
Consequently, the amended restriction cannot be retrospectively imported into A.Y. 2024-25 or A.Y. 2025-26.
The principle is particularly relevant here because the controversy in the present case is precisely whether tax payable under a special-rate provision such as Section 111A could be excluded from the rebate before such exclusion was expressly incorporated into the statute.
The answer must necessarily be governed by the law applicable to the relevant assessment year.
6. Judicial precedents
The issue is no longer merely an academic question. Various Benches of the Hon’ble Income Tax Appellate Tribunal have examined the statutory provisions and have held that, for the relevant assessment years, there was no express statutory bar against allowing Section 87A rebate in respect of tax payable under Section 111A.
6.1 Jayshreeben Jayantibhai Palsana v. ITO
ITAT Ahmedabad – ITA No. 1014/Ahd/2025 – Order dated 12.08.2025
The Ahmedabad Bench examined the precise issue and held that there was no express bar either under Section 87A or Section 111A for denial of rebate in respect of tax payable on Short-Term Capital Gains arising from transfer of listed equity shares taxable under Section 111A.
The Tribunal accordingly held the assessee eligible for rebate under Section 87A for A.Y. 2024-25.
This decision subsequently became the basis for following decisions by several other Benches.
6.2 Seshank Mahadev v. Deputy Director of Income Tax, CPC
ITAT Chennai – ITA No. 2274/Chny/2025 – Order dated 24.10.2025
The Chennai Bench considered the decision in Jayshreeben Jayantibhai Palsana and observed that the statute did not contain any express exclusion restricting the claim under Section 87A with reference to Section 111A.
The Tribunal specifically held that:
there was no express bar under Section 87A or Section 111A for denial of rebate in respect of tax payable on Short-Term Capital Gains arising from transfer of listed equity shares taxable under Section 111A.
The rebate was accordingly directed to be allowed.
6.3 Pushpa Prakash Misar v. ITO
ITAT Mumbai – ITA No. 741/Mum/2026 – Order dated 23.03.2026
This decision is particularly important.
The Mumbai Bench considered the statutory scheme and followed the reasoning in Jayshreeben Jayantibhai Palsana.
The Tribunal recorded that Section 87A did not impose any restriction on the nature of income and that there was no exclusion of income taxable under Section 111A.
The Tribunal also noted the significant distinction between Section 111A and Section 112A: while Section 112A contained a specific statutory restriction, no corresponding restriction existed under Section 111A.
The Tribunal therefore held the assessee eligible for the Section 87A rebate.
7. Bina Pradeep Malli v. ITO – Nagpur ITAT
The issue has now been directly considered by the Nagpur Bench of the Hon’ble ITAT.
ITA No. 414/NAG/2026
Assessment Year 2024-25
Order dated 07.08.2026
In Bina Pradeep Malli v. ITO, the assessee had claimed rebate under Section 87A, whereas the CPC had denied the rebate against the tax payable on Short-Term Capital Gain.
The Hon’ble Nagpur Bench considered the judicial precedents placed before it and specifically relied upon the decision of the Mumbai Bench in Pushpa Prakash Misar.
The Hon’ble Tribunal observed that, on a plain reading of the statutory provisions, there existed no express bar either in Section 87A or Section 111A for denial of rebate under Section 87A in respect of tax payable on Short-Term Capital Gain taxable under Section 111A.
The Nagpur Bench accordingly directed the Assessing Officer to grant the rebate under Section 87A claimed by the assessee.
The present case is therefore squarely covered by the aforesaid decision of the jurisdictional Tribunal.
8. The issue does not require importing anything into the statute
The Applicant respectfully submits that the relief sought does not require:
• liberal interpretation of the statute;
• purposive interpretation;
• equitable interpretation;
• reading down of any provision; or
• travelling beyond the express language of the Act.
The claim is based simply upon the plain language of Section 87A as applicable to the relevant assessment year.
The assessee satisfies the statutory conditions.
The total income is within the prescribed threshold.
The assessee is a resident individual.
The assessee is governed by Section 115BAC(1A).
The statute provides a rebate against income-tax payable on the total income.
And, most importantly, there was no express statutory exclusion for tax payable under Section 111A for the relevant assessment year.
Thus, the issue can be resolved simply by applying the statutory provisions as they stood during the relevant assessment year.
9. Subsequent amendment cannot be used to rewrite the earlier law
The Applicant further submits that the subsequent amendment effective from 1 April 2026 cannot be used as a tool to rewrite the statutory position applicable to earlier assessment years.
In fact, the very fact that Parliament subsequently introduced an express restriction is a strong indication that such restriction cannot simply be presumed to have existed in the earlier law.
The law applicable to the year under consideration must be applied as enacted for that year.
A subsequent amendment cannot be applied retrospectively unless the legislature has expressly provided for retrospective operation.
10. No distinction between “regular income” and “special-rate income” has been prescribed in Section 87A
It is respectfully submitted that the Act may prescribe different rates of tax for different categories of income.
However, the existence of a special rate does not automatically mean that such income is excluded from the computation of total income for all other purposes.
Section 87A, as applicable to the relevant assessment year, used the expression “total income”.
Therefore, unless the Act specifically carves out an item of income from the operation of Section 87A, such exclusion cannot be introduced by administrative interpretation.
The Hon’ble Mumbai ITAT has also recognised this distinction while deciding Pushpa Prakash Misar.
11. Application of the jurisdictional Tribunal’s decision
The Applicant respectfully submits that the decision of the Hon’ble Nagpur ITAT in Bina Pradeep Malli is directly relevant and deserves to be followed, particularly since:
1. the assessment year involved is A.Y. 2024-25;
2. the dispute concerns Section 87A;
3. the total income includes Short-Term Capital Gain;
4. the Short-Term Capital Gain is taxable under Section 111A;
5. the assessee satisfies the threshold prescribed under Section 87A; and
6. the CPC / Department has restricted the rebate on the ground that the tax on Section 111A income is not eligible for rebate.
The Nagpur ITAT has already considered the same controversy and directed the Assessing Officer to grant the rebate.
12. Prayer
In view of the facts stated above, the statutory provisions applicable to the relevant assessment year and the judicial precedents discussed hereinabove, the Applicant most respectfully prays that your goodself may kindly:
a. Allow the rebate under Section 87A of the Income-tax Act, 1961 against the entire eligible income-tax payable on the total income, including the tax payable on Short-Term Capital Gain chargeable under Section 111A;
b. Recompute the total tax liability after granting the rebate under Section 87A;
c. delete/reverse the consequential demand of ₹ [________], if any;
d. grant consequential refund of the excess tax already paid / recovered, together with applicable interest under the provisions of the Act; and
e. Pass such other order as may be considered just and proper in the facts and circumstances of the case.
The Applicant shall be grateful for your kind consideration.
Thanking You,
Yours faithfully,
[Name of Assessee]
PAN: []
Assessment Year: []
Date: []
Place: []
Documents / Annexures
1. Copy of acknowledgement of return of income.
2. Copy of computation of income.
3. Copy of intimation/order under Section 143(1), wherever applicable.
4. Computation showing eligibility for Section 87A rebate.
5. Copy of relevant Form 26AS/AIS, wherever considered necessary.
6. Copy of relevant judicial decisions:
• Jayshreeben Jayantibhai Palsana v. ITO – ITA No. 1014/Ahd/2025;
• Seshank Mahadev v. DDIT, CPC – ITA No. 2274/Chny/2025;
• Pushpa Prakash Misar v. ITO – ITA No. 741/Mum/2026;
• Bina Pradeep Malli v. ITO – ITA No. 414/NAG/2026;
• Other relevant decisions, as applicable.
