lipped from: https://taxguru.in/income-tax/section-87a-rebate-confusion-cita-approves-stcg-cbdt-says-no.html
Section 87A on Special-Rate Income: CIT(A) Allows but CBDT Says No – What Should Taxpayers Really Do?
A Confusing Fortnight for Taxpayers
Within a span of two months, I noticed two very different messages coming from the Income-tax Department on the same subject. In August and October 2025, two appellate orders—one from CIT(A), Panchkula and another from CIT(A), Nagpur—clearly allowed Section 87A rebate even when the taxpayer’s total income included short-term capital gains (STCG) taxed at 15 per cent u/s 111A.
Barely a few weeks later, the CBDT Circular No. 13/2025 (dated 19 September 2025) declared the opposite: according to the Board, rebate u/s 87A cannot be given on income chargeable at special rates.
For thousands of small taxpayers and salary-earners under the new regime, this sudden change created genuine uncertainty—“Which one should we follow now?”
What the CIT(A) Orders Said
In both appeals, the issue was simple: the Centralised Processing Centre (CPC) had denied 87A rebate on STCG while processing returns.
The appellants argued that:
- Section 87A talks about total income and does not carve out capital gains separately.
- Section 111A fixes the tax rate but nowhere says that rebate u/s 87A is barred.
Both Commissioners accepted that reasoning and directed the Assessing Officer to allow the rebate. Their logic was supported by the Bombay High Court judgment dated 24 January 2025 (The Chamber of Tax Consultants v. UOI), which had asked the Department to modify the ITR utilities so that eligible taxpayers could claim the rebate even where the income included STCG.
For many practitioners, those orders felt like the end of the confusion—until the circular arrived.
What the CBDT Circular Changed
The Circular 13/2025 clarifies that Section 115BAC(1A) (the new tax regime) is subject to Chapter XII, meaning that special-rate incomes (STCG u/s 111A, LTCG u/s 112A, etc.) are outside the normal slab computation. Therefore, the Board believes that rebate u/s 87A applies only to the slab-rate portion of income, not to tax on special-rate income.
CPC was instructed to rectify earlier processed cases and raise demand where rebate had been wrongly allowed. To soften the blow, CBDT allowed waiver of interest u/s 220(2) if the additional tax is paid by 31 December 2025.
Two Views, One Law
So today we have:
| View | Position | Binding Force |
| CIT(A) & Bombay HC | Rebate u/s 87A available on total income ≤ ₹7 lakh, even if it includes STCG u/s 111A. | Judicial / Quasi-judicial – binding for that case, persuasive elsewhere. |
| CBDT Circular 13/2025 | Rebate not available on special-rate income. | Administrative – binding on AOs & CPC, not on appellate bodies. |
In plain words, the circular guides officers, while CIT(A) orders interpret the law. Taxpayers are stuck between these two lanes until a higher court settles it.
If You Already Have a CIT(A) Order
If you’ve already received a favourable CIT(A) order, you don’t need to worry. That order stands unless it’s specifically reversed by a higher forum. Keep a copy handy; the Department can’t automatically retract the benefit without due process.
If CPC Has Rectified Your Return
If a rectification u/s 154 has been issued disallowing the rebate and raising demand:
- Verify that the computation matches Circular 13/2025.
- If you agree, pay the demand before 31 December 2025 to get full interest waiver u/s 220(2).
- If you disagree, you may still file an appeal u/s 246A citing the earlier appellate and High-Court precedents.
For New Filings (A.Y. 2025-26 onwards)
At least for now, claim the rebate only if your total income (excluding special-rate components) is within ₹7 lakh. This avoids auto-rectifications later. If the courts again confirm eligibility, the benefit can always be restored through revision or appeal.
My Personal Take
Having seen both appeal files and the circular closely, I believe this episode is less about “who is right” and more about consistency between law and technology. CPC works on fixed rules built into software; appellate authorities work on legal interpretation. Until those two layers are harmonised, such mismatches will keep surfacing.
For now, taxpayers should follow compliance prudently—pay where due to avoid interest, but also use the appellate remedy if the law appears on their side.
Key Deadlines & Points
- 87A rebate – ₹25,000 for total income ≤ ₹7 lakh (new regime).
- Circular 13/2025 – no rebate on special-rate income.
- Interest waiver u/s 220(2) – payment by 31 December 2025.
- Right to appeal – within 30 days of rectification order.
Conclusion
Section 87A has unintentionally become one of the most debated provisions of the new regime. Until a definite judicial ruling arrives, the safest course is balanced compliance—settle valid dues promptly but assert your rights through proper appeal where interpretation is genuinely arguable.
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About the Author: Hanchate Rama Prasada Rao is a Finance & Taxation Professional with experience in direct-tax appeals and compliance support. He writes practical notes on recent circulars and case developments to simplify tax interpretation for working professionals and small taxpayers.
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