Taxable income below Rs 7 lakh: Will you pay zero income tax if this income includes LTCG and STCG for FY 2024-25?

Time of India

3 days ago

Tax experts' view on tax rebate availability under Section 87A on LTCG, STCG
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NTR (No rebate u/s 87A on Capital gains, Adjustment against Basic exemption available) OTR (Rebate u/s 87A on Capital gains available except Covered U/s112a, Adjustment against Basic exemption also available) 1. No tax payable if the total taxable income(excluding any Capital gains) is upto 7 lakhs. Rebate u/s 87A is only available on income other than capital gains 1. No tax payable if the total taxable income(including any Capital gains) is upto 5 lakhs. Rebate is also available for STCG & LTCG(except Covered U/s112a) 2. On any capital gains. The tax is payable at applicable rates even if the taxable income is below 7 lakhs. NO rebate available 2. The taxable income should be below 5lakhs without giving the benefit of exemption of 1.25 under LTCG. Refer case 9 & 10 3. The adjustment of Capital gain is only available if the taxable income is below exemption limit i.e 3lakhs in NTR for FY 2024-25 3. The adjustment of Capital gain is available even if the taxable income is above basic exemption limit i.e 2.5 lakhs in OTR for FY 2024-25, but below 5lakhs 3. The chronology of adjustment against basic exemption will be STCG first & followed up by LTCG 4. The chronology of adjustment against basic exemption will be STCG first & followed up by LTCG
New Tax Regime STCG LTCG u/s 112A LTCG Rebate u/s 87A No No No Adjustment against Basic exemption Yes Yes Yes Old Tax Regime STCG LTCG u/s 112A LTCG Rebate u/s 87A Yes No Yes Adjustment against Basic exemption Yes Yes Yes
What if your total taxable income (excluding LTCG and STCG) is below the basic exemption limit?
The income tax laws applicable for FY 2024-25 allow zero tax payable under the new tax regime if your net taxable income is under Rs 7 lakh. Just a heads up, last year, when you filed your ITR, the Income Tax Department did not allow tax rebates on special incomes such as short-term capital gains and long-term capital gains. Plus, Budget 2025 has clarified that starting from FY2025-26, you won't be able to claim the tax rebate under Section 87A on incomes taxed at a special rate. But what about this assessment year? Can you still get a tax rebate on special incomes when you file your ITR this year for FY 2024-25 (AY 2025-26)?To understand this better, picture this: Let's say your taxable income, not counting LTCG and STCG , is Rs 4.5 lakh. For FY 2024-25 (AY 2025-26), you have LTCG of Rs 75,000 and STCG of Rs 30,000 from equity mutual funds. This brings your total taxable income to Rs 5.55 lakh for FY 2024-25. Since your total taxable income (including LTCG and STCG) is under Rs 7 lakh, can you claim a tax rebate, or do you need to pay tax on LTCG and STCG?ET Wealth Online reached out to tax experts to find out if the tax rebate under Section 87A applies to all incomes, including special incomes, when filing the ITR for FY 2024-25 (AY 2025-26).Suresh Surana, Practising Chartered Accountant, says, "If a resident individual's total taxable income for FY 2024-25 (AY 2025-26) is below the specified threshold, then they may be eligible for a full tax rebate under Section 87A, subject to conditions."Also Read | Capital gains tax ready recknor for house property, listed equity The threshold income to be eligible for 87A rebate under new tax regime for income earned in FY 2024-25 is Rs 7 lakh. This threshold under old tax regime is Rs 5 lakh. The income tax laws allow tax rebate of Rs 12,500 under the old tax regime and of Rs 25,000 under the new tax regime under Section 87A. Due to the tax rebate, there is no tax payable on net taxable incomes up to Rs 5 lakh in the old tax regime and Rs 7 lakh in the new tax regime for FY 2024-25 (AY 2025-26).But the next big question is whether this threshold income will include LTCG and STCG."Such a tax rebate cannot be claimed against LTCG and STCG on equity-oriented mutual funds and listed shares, as these are taxed at special rates under Sections 112A and 111A, respectively, under the new tax regime. Even in such cases, a taxpayer can utilise the basic exemption limit to reduce the taxable portion of capital gains," explains Surana.So, the selection of tax regime will play the most crucial role in determining whether you will get LTCG and STCG included in income for considering 87A tax rebate threshold.Sudhir Kaushik, Co-founder & CEO, Taxspanner (a Zaggle company), says, "The ITR utilities enable tax rebates under Section 87A on all incomes, including LTCG (except those covered under Section 112A) and STCG, if the taxpayer has opted for the old tax regime for FY 2024-25. What it means that LTCG and STCG income can be included to determine threshold for 87A under old tax regime for all asset classes except for LTCG on equity and equity-oriented mutual funds. However, if the taxpayer has chosen the new tax regime for AY 2025-26, then tax rebate under Section 87A is not allowed on the incomes taxed at special rates. What it means that all LTCG and STCG income which are calculated at special rates are not eligible to be included in income for determining the threshold for 87A rebate."Abhishek Soni, CEO of Tax2Win, an ITR filing website, says, "The Income Tax Department's utility for ITR filing for FY 2024-25 does not allow the rebate under Section 87A under the new tax regime if the income is taxed at special rates. However, under the new regime, the rebate can still be claimed if capital gains are taxed at normal slab rates (STCG on property or gains on debt mutual fund purchased on or after April 1, 2023). Under the old tax regime, the rebate under Section 87A is allowed on all types of income (except long-term capital gains under Section 112A) as long as the total income does not exceed Rs. 5 lakh."Also Read | ITR-1, ITR-2 or ITR-3: Which tax return form applies to your income? Vishwas Panijar, Partner, Nangia Andersen LLP, says, "For FY 2024-25 (AY 2025-26), individuals opting for the new tax regime with total income not exceeding Rs 7 lakh are eligible for a rebate of Rs 25,000 under Section 87A. The rebate is available even in case of LTCG/STCG other than LTCG arising from listed securities taxable under Section 112A. In other words, if the long- term capital gains (LTCG) that are part of your total income do not come from selling listed stocks or equity mutual funds, you can get a tax rebate of up to Rs 25,000. Similarly, a taxpayer can claim tax rebate on STCG from equity and equity mutual funds."Akhil Chandna, Partner, Global People Solutions Leader, Grant Thornton Bharat, says, "In our view, a resident taxpayer is entitled to claim rebate on income up to Rs 7 lakh (under new tax regime) on STCG arising from equity shares and/or equity mutual funds. However, such rebate is not available for LTCG on equity shares and/or equity mutual funds."Source: TaxspannerSource: TaxspannerThe basic exemption limit under the old and new tax regimes is different for FY 2024-25 (AY 2025-26).The basic exemption limit is Rs 2.5 lakh (Rs 3 lakh for senior citizens and Rs 5 lakh for super senior citizens) under the old tax regime and Rs 3 lakh (for all individuals) in the new tax regime for FY 2024-25.Further, it is important to note that STCG and LTCG from listed equity shares and equity mutual funds are taxed at special rates.Chandna says, "If someone earns less than the basic exemption limit (i.e., Rs 3,00,000 for the new tax regime and Rs 2,50,000 for the old tax regime for FY 2024-25), then the resident taxpayer can benefit from this exemption on special-rated income. Accordingly, if a resident of India has income solely from STCG and LTCG and other income is less than Rs 7 lakh, the taxpayer should look at the relief options available, like the basic exemption limit and rebate (as applicable). In these cases, not all of the LTCG and STCG will necessarily be taxed at special rates."The income tax laws allow taxpayer to claim exemption of up to Rs 1.25 lakh in a financial year on long-term capital gains from listed shares and equity mutual funds. This means that LTCG tax will be payable only in situations where LTCG exceeds Rs 1.25 lakh in a financial year.Surana says, "The Income Tax Act allows a resident individual whose total income (excluding STCG and LTCG) is below the basic exemption limit to adjust STCG under Section 111A and LTCG under Section 112A against the unutilized portion of the basic exemption limit. This benefit is applicable regardless of whether the taxpayer opts for the old or new tax regime, provided certain conditions are met.""In either regime, if the total income (excluding STCG, LTCG, casual income) falls below the basic exemption threshold, the shortfall w.r.t. to such LTCG and STCG can be adjusted against such basic exemption limit. As such, taxpayers can adjust STCG and LTCG from equity mutual funds and shares under Sections 111A and 112A against the basic exemption if one's total income, including these gains, is below the basic exemption limit, in both the old as well as the new tax regime," Surana told to ET Wealth Online.