Tax Exemption on Income: Important changes have been made in the budget under the new tax regime for taxpayers. In this, by increasing the special tax exemption (rebate) on income up to Rs 12 lakh, it has been made completely tax-free. However, in the case of income from salary along with capital gains, even if the income is less than Rs 12 lakh, income tax will still have to be paid. The reason for this is the income tax rules applicable to specific types of income.
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Tax Exemption on Income: No Benefit of Special Tax Exemption Here
It has been proposed in the budget that the benefit of rebate under Section 87A should be available only on the income from salary. If there is income from sources other than salary, which comes under the ambit of capital gains, then the benefit of the rebate will be limited. That is, in such cases, the rebate will be available only on salary income and not on capital gain income. The taxpayer will have to pay tax on this income as per the rates of short-term or long-term capital gains.
Big Change in Rebate
Earlier under the new tax system, under the old slab, tax exemption on income up to Rs 12.75 lakh was taxed at Rs 80,000, but in the new slab announced in the budget, it will be reduced to Rs 60,000. With this, the government has increased the special tax exemption (rebate) on income tax from Rs 25 thousand to Rs 60 thousand.
With this, those taxpayers whose annual income is up to Rs 12 lakh will be out of the income tax net as their liability will become zero. The thing to note is that the government has given this relief only by changing the rebate available under Section 87A, and not through the basic tax structure.
Tax Exemption on Income: Rebate Eligibility is Limited
- If the entire income comes from salary, pension, interest, rent, or business no special category income is included.
- The total income is less than or equal to Rs 12 lakh and the taxpayer opts for the new tax regime. You will not get any benefit if you choose the old tax system.
In these cases, the tax will have to be paid even if the income is Rs 12 lakh.
Short Term Capital Gain (STCG)
If a person earns short-term capital gains from the stock market, mutual funds, property, or other assets, it will be taxed at the rate of 20%.
- Special tax exemption under section 87A will not apply to this.
Long-Term Capital Gain (LTCG) – Tax at the rate of 12.5% will be applicable on long-term capital gains earned from the stock market, mutual funds, real estate, etc. The point to be noted here is that tax will have to be paid only if the capital gain is more than ₹ 1 lakh.
Tax Exemption on Income: Lottery and Gaming Show
If a person’s income includes income from other special categories like lotteries, gambling, betting, or game shows, it will be taxed at a higher rate of 30%. Tax exemption under section 87A will not be applicable in these cases also.
Business income and other special rate income – If a person earns income from freelancing, business, or professional services, special tax rules may also apply to this.
Tax will be levied on this based on tax slab and exemption will not be available in some cases.
Example – If the total income of a taxpayer is Rs 12 lakh, out of which income from salary is Rs eight lakh, but income from shares or mutual funds is Rs four lakh, then the rebate under Section 87A (maximum Rs 60 thousand) is only on Rs eight lakh. Will get only. That means this income will be completely tax-free. On the remaining income of Rs 4 lakh, income tax will have to be paid as per short or long-term capital gain.
Tax Exemption on Income: Tax on Short-Term Gains
If the income of Rs 4 lakh is short-term capital gain, it will be taxed at a special rate which is 20%, so the investor will have to pay Rs 80,000 as tax. Investments with a tenure of less than one year are included in short-term gains.
Tax rate on long-term gains If there is a long-term gain of Rs 4 lakh in shares or mutual funds, then an exemption of Rs 1.25 lakh will be available and 12.5% tax will have to be paid on the remaining gain of Rs 2.75 lakh. As a result, the investor will have to pay a tax of Rs 34,375 on long-term capital gains. It is worth noting here that investments with a tenure of more than one year are considered long-term gains.
Relief to Investors on Dividend Income
In the budget, the government has increased the TDS limit on dividend income from Rs 5,000 to Rs 10,000. Stock market and mutual fund investors will benefit from this decision because their tax liability will be reduced.
Quoted in Business Standard on India's evolving tax landscape in Budget 2025-26! The increase in the income tax exemption threshold to ₹12 lakh is a progressive step, benefiting at least 1.75 crore citizens and uplifting middle-class sentiment.
— Harsh Patel (@Harshp_LawyerCA) February 3, 2025
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Jay Chavda He is the Founder and Writer of businesspulsecare.com. He is an I.T Engineer, Freelancer, Businessman. He posts Business, Stock/Share Market, Finance Related News and updates on the website. 🔗