The new income-tax rebate up to Rs 12 lakh — and why capital gains don’t benefit

• Capital gains don't qualify for Section 87A tax rebate under the new regime.
• Zero tax up to Rs 12 lakh applies only to regular income, not capital gains
• Capital gains are taxed separately at special rates, not slab rates

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A social media post by a chartered accountant has sparked debate over India’s widely shared claim that there will be “no tax up to Rs 12 lakh” under the new tax regime, highlighting that many people don’t realise capital gains aren’t eligible for the tax rebate.

The CA cites a case where a taxpayer with Rs 10.75 lakh salary income and Rs 1.10 lakh capital gains is still shown a tax payable of about Rs 22,000, triggering confusion over how the threshold works.

She writes on X, formerly Twitter — My client has a salary income of Rs 10.75 lakh per annum. The capital gain is Rs 1.10 lakh. The tax payable is Rs 22,000. Kindly, please explain the correct treatment to the general public.

The key issue is that capital gains are generally taxed separately at special rates, and the rebate that makes income tax-free up to Rs 12 lakh under the new regime typically doesn’t apply to capital gains.

Capital gains are taxed separately, and don’t qualify for Section 87A rebate

Capital gains are profits made from selling assets like stocks, property, and gold, among other assets. STCG applies when an asset is held for less than 12-24 months, depending on the type of capital asset, while LTCG applies when it’s held for over 12-24 months.

For instance, the short-term capital gains are taxed at 20 per cent and 12.5 percent for long-term capital gain assets on equities and have a holding period of 1 year. In the case of the property, the holding period is 24 months.

A rebate of up to Rs 60,000 under Section 87A of the Income Tax Act is available on new regime. For taxpayers under the new tax regime, this can mean zero tax up to Rs 12 lakh income, or up to 12.75 lakh gross, after applying the standard deduction of Rs 75,000.

However, the rebate under Section 87A doesn’t apply to capital gains.

Rajarshi Dasgupta, Executive Director (Tax), Aquilaw, explains that under India's new tax regime, the Rs 12 lakh income tax exemption under Section 87A rebate typically doesn't cover capital gains because these are taxed separately at special rates, not slab rates.

“This means that income from selling assets like stocks, property, or gold still attracts tax even if your total income seems below the threshold,” Dasgupta said, adding that the rebate applies to regular income only.

Hence, the zero-tax benefit doesn’t apply in this case because it involves capital gains.

Even the Union Budget 2025 explicitly mentioned that Section 87A is not available for capital gains income. “There will be no income tax payable up to income of Rs. 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime,” Finance Minister Nirmala Sitharam said during her Budget 2025 speech on February 1, 2025.