According to the Finance Bill 2025, capital gains are excluded from tax rebate calculations under Section 87A. The new tax regime has increased the tax-free income limit from ₹7 lakh to ₹12 lakh, while the maximum rebate has been set at ₹60,000. Additionally, the basic exemption limit is now ₹4 lakh.
No Tax Rebate on Capital Gains
The Central Board of Direct Taxes (CBDT) has clarified that capital gains under Section 111A and 112 will not be considered for the Section 87A rebate. This means that if your income falls under these sections, it will be taxed at special rates, even if your total income is below ₹12 lakh.
Avoid This Misconception – Understand What’s Really Tax-Free
If your income is solely from salary and is within ₹12 lakh, you won’t have to pay any tax. However, if your income includes lottery winnings, horse race earnings, stock market capital gains, or other similar sources, they will be taxed separately at special rates.
Example:
- If your salary is ₹6 lakh and you earn an additional ₹6 lakh from capital gains or lottery, the ₹6 lakh from special sources will be taxed separately.
- Your total ₹12 lakh income will NOT be entirely tax-free—only the salary portion will remain tax-free.
Changes in Section 87A:
- Tax-free income limit increased from ₹7 lakh to ₹12 lakh.
- Maximum tax rebate increased from ₹25,000 to ₹60,000.
- Basic exemption limit set at ₹4 lakh.
New Tax Calculation (New Tax Regime - 2025)
| Income (₹) | Tax Rate | Tax Payable (₹) |
|---|---|---|
| Up to ₹4,00,000 | 0% | 0 |
| ₹4,00,001 – ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 – ₹12,00,000 | 10% | ₹40,000 |
| Rebate under Section 87A | - | ₹60,000 (-) |
| Total Tax Payable | - | 0 |
No Impact on the Old Tax Regime
According to CBDT, there are no changes in the old tax regime. Surcharge and education cess remain unchanged. However, the new tax regime (Section 115BAC) has been revised with modified tax slabs and rates.
Which Incomes Are Not Eligible for Section 87A Rebate?
CBDT has clarified that assets taxed at special rates under the Income Tax Act, 1961, such as capital gains (under Sections 111A and 112), will not be considered for the 87A rebate.
Excluded Incomes:
✅ Capital Gains from Shares & Investments (Sec 111A, 112)
✅ Horse race earnings
New Tax Slabs Under the New Tax Regime (Assessment Year 2026-27)
| Total Income (₹) | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Tax-Free (Nil) |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Conclusion: Plan Wisely to Save Taxes
✔ If your income is up to ₹12 lakh and comes solely from salary, you won’t have to pay tax.
✔ If it includes capital gains, lottery winnings, or other special incomes, tax will apply.
✔ The old tax regime remains unchanged, but the new tax regime offers increased rebates under Section 87A.
❗ Avoid misconceptions, plan your taxes properly, and save yourself from paying unnecessary taxes!
