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The eligibility of Indian residents to claim a Section 87A tax rebate against capital gains taxed at special rates under Sections 111A and 112 remains controversial. While Section 112A explicitly prohibits the rebate, no such text-based restriction exists for Sections 111A or 112. Most ITAT benches allow the claim, arguing that the rebate applies to total tax payable on total income. Conversely, the Rajkot Bench in Kotecha’s case disallowed it, labelling the rebate "rate-sensitive". However, subsequent rulings clarify that restrictive amendments by the Finance Act 2025 apply only prospectively from AY 2026-27.
ISSUE FOR CONSIDERATION
An assessee, being an individual resident in India, is entitled to a deduction (“rebate/relief”) of the prescribed amount from the amount of income tax payable on his total income, subject to certain conditions stipulated under Section 87A of the Income-tax Act, 1961(section 156 of the Income-tax Act, 2025). This rebate is allowed to individuals under both the old and new tax regimes.
Section 111A (section 196) and section 112 (section 197) provide for the taxation of capital gains, short-term or long-term, at special rates. The relevant sections do not contain any provision for prohibiting an assessee in claiming the rebate, wherever eligible against the tax payable on capital gai
