02-05-2025
Row over rebate on capital gains tax settled in taxpayers' favour
Ahmedabad: The rebate row over capital gains tax has taken a decisive turn. With the Centre amending
Section 87A
through the Finance Act, 2025, the law now clearly denies rebates on income taxed under special rates, including capital gains.
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But here's the twist — the change is forward-looking, not retrospective. That gives taxpayers a strong legal footing to claim missed rebates from previous years.
The debate over the eligibility of rebate under Section 87A of the Income-Tax Act — particularly concerning tax on
short-term capital gains
(STCG) from equity shares under Section 111A and
long-term capital gains
(LTCG) from listed securities under Section 112 — has been a long-standing one.
The Central Board of Direct Taxes (CBDT), in its Budget 2025 FAQs, clarified that rebates under Section 87A are only available for taxes calculated as per slab rates under the new tax regime (Section 115BAC) and not on capital gains, lotteries, or other special-rate incomes.
International tax expert Mukesh Patel explained that the legislative amendment now restricts the rebate to only the tax payable under Section 115BAC(1A).
"This amendment, applicable from Assessment Year 2026–27, shuts the door on future claims based on capital gains. But since it has been made prospectively, taxpayers can still claim such rebates for AYs 2024–25 and 2025–26," he said.
This update could offer significant relief to many taxpayers who faced rejection of their rebate claims after the CBDT, on July 5, 2024, instructed the Centralised Processing Centre (CPC) to block such claims in the ITR utility.
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The govt had earlier enhanced the scope of rebate — increasing the income threshold from Rs 5 lakh to Rs 7 lakh and the rebate amount from Rs 12,500 to Rs 25,000 — to push taxpayers toward the new regime under Section 115BAC. However, the tax department refused to extend these benefits to capital gains incomes, which sparked protests and legal challenges.
"The Bombay high court directed the reopening of the ITR utility.
However, the department continued to reject claims for rebate in this regard, without heeding the view that taxpayers could not be deprived of their legitimate claim, as there was no amendment in law to support its interpretation," said Patel.
Mukesh Patel said, "After above-referred amendment, introduced only with prospective effect, there is no room for controversy any longer. Taxpayers can easily defend their claims under appeal or even press for relief by way of revision or rectification in respect of concluded matters for Assessment Year 2024-25."
