CBDT clarifies Income Tax Rebate on Income upto Rs.12 lakh not include Capital Gains:

CBDT clarifies Income Tax Rebate on Income upto Rs.12 lakh not include Capital Gains Finance Minister Nirmala Sitharaman's Budget 2025 statement on income tax rebates has caused uncertainty among taxpayers, particularly the inclusion of capital gains under the Rs.12 lakh exemption. The Central Board of Direct Taxes (CBDT) has recently clarified that income taxed at special rates, such as capital gains, will not be considered when evaluating eligibility for the Section 87A rebate. According to the 'Key Highlights of the Finance Bill, 2025,' resident individuals who choose the new tax regime under Section 115BAC will not be required to account for capital gains when computing the Rs 12 lakh limit for the Section 87A rebate. For example, if a taxpayer earns Rs.13 lakh in a given financial year, including Rs.1 lakh in capital gains, the capital gains part will be omitted from the rebate calculation. This indicates that the taxpayer's taxable income for rebate purposes would be Rs.12 lakh, making them eligible for the exemption. The new tax regime rebate applies only to yearly income of up to Rs.12 lakh. However, after deducting the standard deduction of Rs.75,000, salaried taxpayers can claim the rebate on an effective income of up to Rs.12.75 lakh.

Taxation of Capital Gain

Capital gains occur when an individual sells an asset for more than its purchase price. These gains are categorized as:

• Short-Term Capital Gains (STCG) occur when equity shares or mutual funds are sold within 12 months of purchase. The STCG tax has been increased to 20% in Budget 2024.
• Long-Term Capital Gains (LTCG) apply to equity shares held for more than 12 months. The LTCG tax rate was increased to 12.5% in Budget 2024 from 10%.

Also, LTCG up to Rs 1.25 lakh is tax-free.

Income Tax Slabs under New Tax Regime for FY 2025-26

The revised income tax slabs under the new tax regime for FY 2025-26 are:

0-4L	0%
4-8L	5%
8-12L	10%
12-16L	15%
16-20L	20%
20-24L	25%
Above 24L	30%

Most Important Things for Taxpayers

• The  rebate of Rs.12 lakh under Section 87A is only accessible under the new tax regime.
• Capital gains are excluded when calculating eligibility for the rebate.
• Salaried individuals are eligible for the rebate if their income is up to Rs 12.75 lakh, including the standard deduction of Rs 75,000.
• LTCG up to Rs 1.25 lakh remains tax-free, but STCG is now charged at 20%.

With the CBDT's clarifications, taxpayers can better comprehend their income tax liability and arrange their finances for the financial year 2025-26.