Top News

The Union Budget 2025 introduced a major relief for taxpayers who opt for the new income tax regime, making annual income up to ₹12 lakh completely tax-free through an enhanced rebate under Section 87A. Under this provision, eligible taxpayers can get a tax rebate of up to ₹60,000, significantly higher than the ₹12,500 rebate available under the old regime.

However, many taxpayers are confused about whether this generous rebate also applies when their income includes capital gains. A recent query from a Gurgaon-based investor highlights this concern: if the total income is below ₹12 lakh but includes capital gains from shares and mutual funds, does the taxpayer still qualify for the rebate?

To clarify the rules, Moneycontrol consulted well-known tax expert Balwant Jain, who explained the rebate eligibility in detail.

New Tax Regime: Lower Tax Rates but No Deductions

Section 115BAC governs the new tax regime. It covers individuals, Hindu Undivided Families (HUFs) and Associations of Persons (AOPs).
This regime offers lower tax rates on normal income, but it does not allow popular deductions such as:

• House Rent Allowance (HRA)

• Leave Travel Allowance (LTA)

• Section 80C (investments)

• Section 80CCD (NPS contributions beyond employer’s share)

• Section 80G (charitable donations)

• Section 80TTA and 80TTB (interest on deposits)

So, while taxpayers benefit from lower tax slabs, they cannot reduce their taxable income through the typical deductions available under the old tax regime.

What Makes the Section 87A Rebate Different?

Under the new tax regime, a taxpayer qualifies for a ₹60,000 rebate under Section 87A, provided that:

• Total income does not exceed ₹12 lakh, and

• The income considered for rebate qualification is only normal income.

Balwant Jain clarifies that the rebate cannot be applied to reduce tax payable on special-rate incomes, such as certain capital gains.

This means that even if a taxpayer’s income is below ₹12 lakh, the presence of special-rate income requires a closer look at how the rebate is applied.

Capital Gains: Are They Counted When Checking Eligibility?

In the case raised by Rohit Saini from Gurgaon, his tax profile includes:

• Total income below ₹12 lakh

• ₹60,000 Short-Term Capital Gains (STCG) on equity (taxed at 20% + cess)

• ₹1 lakh Long-Term Capital Gains (LTCG) on listed shares and equity mutual funds

Here’s how the rules apply:

1. LTCG up to ₹1.25 lakh is tax-free under Section 112A

Since his long-term capital gains are only ₹1 lakh, they fall within the exempt limit of ₹1.25 lakh. Therefore, no tax is payable on LTCG.

2. STCG is taxable at special rates

Short-term capital gains on equity are taxed at a special rate of 20% (plus cess).
Section 87A rebate cannot be used to offset tax arising from such special-rate income.

3. Rebate applies only on tax from normal income

Jain explains that Saini’s normal income is within the ₹12 lakh threshold, which makes him eligible for the full ₹60,000 rebate under Section 87A.

As a result, the tax payable on his normal income becomes zero.
However, he will still need to pay tax on his ₹60,000 short-term capital gains, as the rebate cannot reduce this liability.

Final Answer: Does He Get the Rebate?

Yes.
Saini is eligible for the Section 87A rebate because his normal income is below ₹12 lakh under the new regime.
But the rebate does not apply to his short-term capital gains.
Therefore, he will pay tax only on his STCG amount, while his normal income remains tax-free due to the rebate.