Do Taxpayers With Rs 12 lakh Income Plus Equity Capital Gains Still Pay Zero Tax?

Budget 2025 made salaried income up to Rs 12 lakh tax-free, taxpayers Rs 12 lakh earlier would now save nearly Rs 80,000 in taxes under the new regime.  However, this raises several questions. Does total income need to be Rs 12 lakh for one to be eligible for such a rebate? What happens if the total income including capital gains from equity is higher than Rs 12 lakh? Will that income also qualify for a rebate? 

“In the Budget 2025 as announced on 1st February 2025, the Finance Minister clarified that tax rebate u/s 87A is not available against income taxed at special rates under Sections 111A and 112A, etc. including short-term and long-term capital gains from equity investments,” says Surana. 

Let us take the example of someone who has a salaried income of Rs 12 lakh and an income of Rs 1 lakh on equity capital gains. It is important to remember that the amount of tax paid would depend on whether the Rs 1 lakh capital gains are long-term capital gains or short-term capital gains. 

If the Rs 1 lakh is from short-term capital gains, the tax implications are as follows: From 23 July 2024, the short-term capital gains tax has been increased to 20 per cent. 

However, in the above case, if the capital gains had been long-term capital gains (LTCG) chargeable to tax under Section 112A, they would have been exempt up to Rs 1.25 lakh. 

“Consequently, with the LTCG exemption applied, the total taxable income would remain within the Rs 12 lakh threshold, making the taxpayer eligible for the rebate under Section 87A. This would have effectively reduced the tax liability to nil, providing complete relief under the rebate provisions,” says Surana.