Section 87A rebate: Do capital gains impact eligibility under the new tax regime?

If your income taxable at slab rates is under Rs 12 lakh, you qualify for the Section 87A rebate. Today's Ask Wallet Wise query decodes how short and long tem capital gains are taxed separately and what it means for your final tax outgo.

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To claim rebate under Section 87A under the new tax regime, income taxable at slab rates should not exceed Rs 12 lakh. Does this mean that if someone has income taxable at slab rates of Rs 11.99 lakh, short-term capital gain on equity of Rs 1 lakh, and long-term capital gains of Rs 1.25 lakh on equity, the tax payable would be only on Short Term Capital Gain (STCG) of Rs 1 lakh at 20 percent + cess? Could you please clarify?

Expert's Advice: Under the new tax regime, a resident individual is entitled to a tax rebate under Section 87A of up to Rs 60,000 if his income taxable at slab rates does not exceed Rs 12 lakh. The 87A rebate applies on income taxed at slab rates and does not include income taxed at flat rates, such as Long Term Capital Gains (LTCG) and STCG on equity instruments.

Long-term capital gains and short-term capital gains on listed equity shares and equity-oriented schemes are taxed at flat rates of 12.5 percent and 20 percent, respectively. As far as long-term capital gains on listed shares and equity-oriented schemes are concerned, the aggregate LTCG up to Rs 1.25 lakh is taxed at a zero rate and is therefore tax-free in the hands of the taxpayer. Any LTCG exceeding Rs 1.25 lakh is taxed at 12.5 percent.

So, in the example given by you, you will get a rebate of Rs 59,900 against the full tax liability on income taxable at slab rates of Rs 11.99 lakh. Since long-term capital gains up to Rs 1.25 lakh are taxed at a zero rate, your tax liability on the same would be nil. You will only have to pay tax of Rs 20,000 on the short-term capital gains of Rs 1 lakh. The tax payable shall be increased by a 4 percent cess and applicable surcharge.