New Delhi: Individuals opting for the new tax regime under Section 115BAC can benefit from a significantly enhanced income-tax rebate of ₹60,000 under Section 87A, provided their normal income does not exceed ₹12 lakh.

However, questions often arise when taxpayers also earn capital gains—particularly those taxed at special rates.

Let’s take a situation. If an investor remains eligible for the rebate when their income includes short-term capital gains (STCG) and long-term capital gains (LTCG) from listed equity shares and equity mutual funds.

According to tax experts, the new regime offers concessional slab rates but disallows most deductions such as HRA, LTA, and deductions under Sections 80C, 80CCD, 80G, 80TTA and 80TTB.

Importantly, the computation of eligibility for the Section 87A rebate excludes income taxed at special rates, such as capital gains.

This means that only normal income—salary, interest income, or business income taxed at slab rates—is considered when checking if the ₹12 lakh threshold is breached.

In the case presented, the individual has:

  1. Normal income: Less than ₹12 lakh
  2. Short-term capital gains (STCG) on listed equity/equity mutual funds: ₹60,000
  3. Long-term capital gains (LTCG) on listed equity/equity mutual funds: ₹1 lakh

Experts clarified that since the person’s normal income stays below the ₹12-lakh limit, they fully qualify for the ₹60,000 Section 87A rebate under the new tax regime. The rebate will reduce the tax liability on normal income to zero. For capital gains, however, no rebate applies.

Under Section 112A, LTCG on listed equity and equity mutual funds up to ₹1.25 lakh is taxed at 0%, effectively making the investor’s ₹1 lakh LTCG entirely tax-free.

The remaining tax liability arises solely from the ₹60,000 STCG, which continues to be taxed at 20% plus cess under the special tax rate structure applicable to certain short-term capital gains.

It is important to note that taxpayers must clearly distinguish between “normal income” and income taxed at special rates when calculating rebate eligibility.

While the enhanced rebate provides relief to middle-income earners under the new regime, capital gains continue to be governed by their respective tax provisions, unaffected by Section 87A.