Lady with Rs 5.28 lakh income pays no tax despite Rs 1.42 lakh STCG from equities; Know why ITAT Mumbai allowed the Section 87A rebate

Since the Income Tax utility disabled the option to claim Section 87A tax rebate on short term capital gains (STCG) from listed equities in 2024, many taxpayers across the nation found themselves facing either a tax demand or some confusion. The Budget 2026 clarified things by stating that the Section 87A tax rebate does apply to special rate income like STCG. However, those who claimed it before this announcement, received a tax notice.

This article tells the story of a taxpayer from Thane who chose to challenge the Income Tax Department regarding the Section 87A issue and ultimately triumphed in the ITAT Mumbai.

Marlecha, who lives in Bhayander West, Thane, submitted her income tax return (ITR) declaring Rs 5.28 lakh income, which included Rs 1.42 lakh from short term capital gains (STCG) on listed equity shares. She had claimed a Section 87A tax rebate on this STCG, which was why she received a tax notice.


While processing her ITR, the Centralised Processing Centre, Bengaluru, issued her a Section 143 (1) intimation notice that specifically denied the Section 87A tax rebate on her STCG. Feeling aggrieved, she filed an appeal with the commissioner of appeals (CIT A), but her appeal was dismissed. This prompted her to appeal to the Income Tax Appellate Tribunal (ITAT Mumbai). On June 18, 2026 she won the case in ITAT Mumbai. Chartered Accountant Mohd. Iqbal represented her.

Also read: Claimed 87A tax rebate for STCG in your ITR? You may get tax demand notice

Summary of the judgement

Chartered Accountant Suresh Surana says that in this case (ITA No. 812/Mum/2026), the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT),, considered whether a resident individual could claim rebate under Section 87A against tax payable on short-term capital gains (STCG) taxable at the special rate prescribed under Section 111A for Assessment Year (AY) 2024-25.

Also read: From Rs 21,350 tax demand to zero tax; How a taxpayer won Section 87A case in ITAT Bengaluru

The tax tribunal decided in favour of the taxpayer and directed the Assessing Officer/CPC to grant the applicable rebate and recompute her tax liability.

The taxpayer, a resident individual, had filed her return declaring a total income of Rs 5,28,210, which included STCG of Rs 1,42,120 arising from the transfer of equity shares. She was governed by the new tax regime under Section 115BAC(1A), and her total income was below the Rs 7 lakh threshold prescribed under Section 87A for AY 2024-25.

While processing the return under Section 143(1), the CPC denied the Section 87A rebate for the tax payable on the STCG taxable under Section 111A.

The taxpayer challenged the adjustment before the CIT(A), arguing that neither Section 87A nor Section 111A expressly prohibited the grant of rebate against tax payable on such STCG. She also pointed out that unlike Section 112A(6) which specifically limits the Section 87A rebate for tax on specified long-term capital gains, there was no similar restriction for STCG.

Also read: Section 87A rebate rule correction: No income tax till income of Rs 12.75 lakh for salaried individuals except this income

The CIT(A), nevertheless, upheld the CPC's decision, claiming that income taxed at special rates under Chapter XII, including STCG under Section 111A, was automatically excluded from the Section 87A rebate.

However, ITAT Mumbai disagreed with the CIT(A)'s interpretation. It noted that Section 87A, as applicable to AY 2024-25, granted the rebate to resident individuals who met the total-income criteria and did not distinguish between tax calculated at normal slab rates and tax calculated at special rates.

Similarly, Section 111A did not include any provision excluding the tax payable on STCG from the ambit of Section 87A.

Therefore, the Income Tax Department could not introduce a restriction that was not there in the statutory language.

Also read: Section 87A tax rebate allowed on both long and short term capital gain income from equity for AY 2024-25 by ITAT Indore; Know why

Why did the taxpayer win the case?

Surana says a significant part of the tax tribunal's reasoning was the comparison between Sections 111A and 112A. Section 112A(6) expressly restricts the Section 87A rebate in respect of specified long-term capital gains, whereas no corresponding restriction existed in Section 111A.

The tax tribunal applied the settled principle that where the Legislature expressly incorporates a restriction in one provision but omits it from an analogous provision, the omission cannot be supplied administratively by the CPC, Assessing Officer or CIT(A).

Surana says the tax tribunal also considered the amendment made by the Finance Act, 2025, restricting the rebate under Section 87A to tax computed at the rates prescribed under Section 115BAC(1A).

According to Surana: "Since that amendment was expressly made effective from 1 April 2026, i.e., AY 2026-27, the ITAT held that it was prospective and could not be applied to AY 2024-25."

Surana says that the amendment could not be treated as retrospective merely because the Explanatory Memorandum described the change as clarificatory. A subsequent amendment or explanatory material cannot override the plain statutory language applicable to an earlier year or withdraw a benefit that was then available.

The taxpayer therefore won because, for AY 2024-25, there was no express legislative prohibition against allowing Section 87A rebate on tax payable on STCG under Section 111A.

Following the coordinate-bench's decision in the Jayshreeben Jayantibhai Palsana v. ITO, the ITAT set aside the CIT(A)'s order and directed the AO/CPC to grant the admissible rebate.

According to Surana, this ruling is specifically relevant to STCG under Section 111A for the period before the amendment effective from AY 2026-27 and should not be extended to long-term capital gains governed by Section 112A, where an express restriction already existed.