--- title: "Section 87A Rebate Cannot Be Denied on STCG Taxable under Section 111A for AY 2025-26 | BNPS and Associates LLP" url: "https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26" description: "Analysis of rebate and STCG u/s 111A for AY 2025-26" --- # Section 87A Rebate Cannot Be Denied on STCG Taxable under Section 111A for AY 2025-26 Written by: **[CA Divyang J Shah](https://bnpsca.com/partner/ca-divyang-j-shah)** \| Topic: **Income Tax** ![Section 87A Rebate Cannot Be Denied on STCG Taxable under Section 111A for AY 2025-26](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:1200:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/6867a842af8f4-GST-Audits.jpg)30-09-2026 Analysis of rebate and STCG u/s 111A for AY 2025-26 **Background** The assessee filed her return for AY 2025-26 on 15 September 2025 declaring total income of ₹6,95,720. This included STCG of ₹1,54,411 chargeable to tax at the special rate under section 111A. Tax on the returned income was computed at ₹35,857, and the assessee claimed a rebate of ₹25,000 under section 87A. While processing the return under section 143(1), the CPC restricted the rebate to ₹12,066. In effect, the tax attributable to the STCG was excluded from the computation of the rebate. The assessee's appeal before the first appellate authority was dismissed. That authority upheld the CPC's adjustment and relied on CBDT Circular No. 13/2025 dated 19 September 2025, which referred to cases where the rebate had been allowed against income taxable at special rates and directed rectification in such cases. **Issue Before the Tribunal** Whether, for AY 2025-26, the rebate under the first proviso to section 87A can be denied to the extent the tax liability includes tax payable on STCG chargeable under section 111A. **Contentions of the Assessee** The assessee raised the following main grounds: 1. The Act, as applicable for AY 2025-26, contained no statutory bar on setting off the section 87A rebate against tax on STCG under section 111A. 2. A beneficial statutory provision cannot be curtailed by an administrative circular, and reliance on Circular No. 13/2025 effectively rewrote the law for the year. 3. The Finance Act, 2025 inserted a proviso excluding income taxable at special rates from the rebate, but made it effective only from 1 April 2026 (AY 2026-27). Applying it to AY 2025-26 would amount to retrospective application. 4. The existing proviso to section 87A excluded only tax on long-term capital gains under section 112A. The omission of section 111A from that exclusion showed the legislature's intent to allow the rebate against STCG for the year under consideration (*expressio unius est exclusio alterius*). **Analysis by the Tribunal** **1. The statutory position for AY 2025-26.** The Tribunal noted that, under the first proviso to section 87A, where total income did not exceed ₹7,00,000, the assessee was entitled to a deduction from the income-tax computed on that total income equal to 100% of the tax or ₹25,000, whichever was less. The language applicable for the year contained no express exclusion of income chargeable to tax at the special rate under section 111A. **2. The functions of sections 111A and 87A are distinct.** Section 111A merely prescribes the rate at which tax is charged on specified short-term capital gains. Section 87A operates at a different stage, by granting a rebate from the amount of income-tax. For AY 2025-26, neither section contained an express prohibition on granting the rebate with reference to tax payable on STCG under section 111A. **3. The later amendment operates prospectively.** The Finance Act, 2025 amended section 87A with effect from 1 April 2026. It increased the threshold and quantum of the rebate under the new regime and inserted a further proviso limiting the deduction to the income-tax payable at the rates provided in section 115BAC(1A). Because the amendment was made expressly effective from AY 2026-27, it could not be applied retrospectively to AY 2025-26. **4. Reliance on earlier decisions.** The Tribunal followed the coordinate bench decision in *Jayshreeben Jayantibhai Palsana v. ITO* (ITA No. 1014/Ahd/2025, order dated 12.08.2025), which dealt with an analogous denial of the rebate on STCG under section 111A under the new regime. That bench had found no express bar in section 87A or section 111A and observed that the prospective amendment reinforced this conclusion. The Tribunal also referred to the Bombay High Court in *The Chamber of Tax Consultants v. Director General of Income-tax (Systems)* \[2024\] 169 taxmann.com 506 (Bombay). In that case the court held that a statutory rebate cannot be taken away merely through a procedural change in the departmental utility. **5. Effect of the CBDT circular.** The Tribunal held that an administrative circular cannot impose a substantive restriction that is not found in the statutory provision applicable to the relevant assessment year. The question had to be decided on the law as it stood for AY 2025-26. **Decision** The assessee's total income of ₹6,95,720 was below the ₹7,00,000 threshold, and she had claimed the maximum rebate of ₹25,000. The fact that ₹1,54,411 of that income was taxable under section 111A did not, by itself, justify denying the rebate in the absence of an express statutory restriction. The Tribunal held that restricting the rebate from ₹25,000 to ₹12,066 was not sustainable. It directed the Assessing Officer/CPC to: - recompute the tax liability and allow the full rebate under section 87A, subject to verification of the assessee's eligibility under other conditions of the Act, and consequential computation of tax and cess; - delete the demand raised in the CPC intimation; and - grant any refund as per law. The appeal was allowed. **Conclusion** - The Tribunal has made it clear that, for AY 2025-26, the section 87A rebate cannot be reduced simply because part of the total income is short-term capital gain taxable under section 111A. The law applicable to that year had no such restriction, the amendment by the Finance Act, 2025 applies only from AY 2026-27, and a CBDT circular cannot add a restriction that the statute itself does not contain. As this ruling turns on the facts of one assessee, its application to any other case should be examined on that case's own facts. Read the order: --- *This article is intended for general information and knowledge sharing only, based on the order of the Tribunal shared above. It does not constitute professional advice. Please consult professional before acting on any of the matters discussed.* - Tags: - [\#incometax #litigation #section87A #section111A](#) ![CA Divyang J Shah](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:200:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/6872083e9ad46-10.png)About the Author #### CA Divyang J Shah Ahmedabad Income tax Assessment & Appeals Public trust, Private Trust [View Profile ](https://bnpsca.com/partner/ca-divyang-j-shah) #### Share this on social media : [ Share ](http://www.facebook.com/sharer.php?u=https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26) [ Tweet ](https://twitter.com/intent/tweet?url=https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26) [ Post ](https://vk.com/share.php?url=https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26) [ post ](https://www.linkedin.com/shareArticle?mini=true&url=https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26) [ Share ](https://api.whatsapp.com/send?text=https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26) [ post ](https://reddit.com/submit?url=https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26) [ pin ](https://pinterest.com/pin/create/button/?url=https://bnpsca.com/insight/section-87a-rebate-cannot-be-denied-on-stcg-taxable-under-section-111a-for-ay-2025-26) ## You May Also Like Similar Articles You Might Find Interesting [ ![TDS/TCS changes from 1st October 2024](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:500:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/688064a0140c2-466852974.jpeg) ](https://bnpsca.com/insight/tds-tcs-changes-from-1st-october-2024 "Blog Link")06-10-2024 #### [TDS/TCS changes from 1st October 2024](https://bnpsca.com/insight/tds-tcs-changes-from-1st-october-2024 "TDS/TCS changes from 1st October 2024") By nareshco [Continue Reading](https://bnpsca.com/insight/tds-tcs-changes-from-1st-october-2024) [ ![New-Income Tax Bill 2025 – Simplification ~Consolidation ~ Clarity](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:500:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/68886745de300-image-income-tax-bil.png) ](https://bnpsca.com/insight/new-income-tax-bill-2025-%E2%80%93-simplification-consolidation-clarity "Blog Link")14-02-2025 #### [New-Income Tax Bill 2025 – Simplification ~Consolidation ~ Clarity](https://bnpsca.com/insight/new-income-tax-bill-2025-%E2%80%93-simplification-consolidation-clarity "New-Income Tax Bill 2025 – Simplification ~Consolidation ~ Clarity") By CA. 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