ITAT Allows Rebate of Rs. 12,500 u/s 87A Despite Inclusion of Long-Term Capital Gains

ITAT Allows Rebate of Rs. 12,500 u/s 87A Despite Inclusion of Long-Term Capital Gains

The assessee had submitted a return for AY 2024-25, reporting a total income of Rs. 4,97,220, which included long-term capital gains, and had claimed a rebate of Rs. 12,500 under Section 87A. The Centralised Processing Centre refused the rebate, finding that the income chargeable at special rates was not admissible. The first appellate authority concurred with this view and dismissed the appeal.

It was submitted before the Tribunal that Section 87A entitles a rebate of Rs. 12,500 if the total income does not exceed Rs. 5 lakh. Since “total income” as defined in Section 2(45) includes all heads of income and does not carve out long-term capital gains, the denial of rebate was argued to be contrary to law. Reliance was also placed on the High Court decision in Rajiv G Shah, which had held that there is no exclusion of any income category from Section 87A.

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Issue Raised: Whether a rebate under Section 87A can be denied when the total income, though including long-term capital gains, does not exceed Rs. 5 lakh.

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ITAT’s Order: The Tribunal noted that Section 87A does not include any exclusion for incomes charged to special rates. It ruled that the rationale of the appellate authority, considering the assessee as not eligible by reference to Section 115BAC, was incorrect. The proviso to Section 87A under the Finance Act 2024 is prospective from 01/04/2025 and is hence inapplicable to AY 2024-25.

Thereafter, lower authority’s orders were kept aside and the Assessing Officer was instructed to grant the rebate of Rs. 12,500 u/s 87A. All reasons submitted by the assessee were granted.

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