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  5. Budget 2025: Income tax rebate under section 87 A should include LTCG, STCG from equity, experts suggest

Personal Finance News

Budget 2025: Income tax rebate under section 87 A should include LTCG, STCG from equity, experts suggest

rajeev kumar
By Rajeev Kumar

3 min read | Updated on January 21, 2025, 09:51 IST

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SUMMARY

Budget 2025 income-tax rebate expectations: The special rate incomes allowed for the rebate under section 87A include short-term capital gains (STCG) on equity shares or equity mutual funds, which are currently taxable at 20% under section 111A.

budget 2025 capital gains tax expectations

Budget 2025 expectations: Taxpayers opting for the new tax regime can claim a rebate of up to ₹25,000 under section 87A if the total income is up to ₹7 lakh. Representational image

Budget 2025 Income-tax relief expectations: Section 87A of the Income-tax Act 1961 allows taxpayers to reduce their tax liabilities to zero if their income is up to ₹7 lakh under the new tax regime and up to ₹5 lakh under the old regime.

However, the Income-tax Return (ITR) utility released by the tax department on July 5, 2024, excluded special rate incomes from rebate calculation under section 87A for those opting for the new tax regime, leading to a controversy.

The controversy reached the Bombay High Court, which provided an interim relief by directing the Central Board of Direct Taxes (CBDT) to extend the ITR filing deadline for taxpayers eligible to claim 87A tax.

Ahead of Budget 2025, the Institute of Chartered Accountants of India (ICAI) and Taxmann, a tax research firm, have separately recommended necessary changes in the ITR utility to allow rebates under section 87A for special rate incomes.
In its Pre-Budget Memorandum submitted to the Government, the Institute of Chartered Accountants (ICAI) has recommended the government to address the concerns of taxpayers regarding rebates for special rate incomes.
“It is suggested that requisite changes be made in the income-tax utility to provide for rebate u/s 87A in respect of income-tax on long-term capital gains chargeable u/s 112 and short-term capital gains chargeable u/s 111A, where income is computed under the default tax regime u/s 115BAC(1A),” the ICAI said.

According to Taxmann, the section 87A rebate should apply to the total income. It shouldn't exclude the income taxable at the special rate as long as the total income is below the threshold of ₹7 lakh under the new tax regime.

"It is recommended that the legislature amend Section 87A in the upcoming budget to explicitly mention that the rebate should be allowed for both normal and special income. However, certain incomes, such as winnings from lotteries or online games, could be excluded from the computation of the rebate," Taxmann said in its pre-budget recommendations.

Tax rebate on special rate incomes allowed by section 87A

As per the Income-tax Act, the special rate incomes allowed for the rebate under section 87A include short-term capital gains (STCG) on equity shares or equity mutual funds, which are currently taxable at 20% under section 111A.

While section 87A rebate doesn't apply to long-term capital gains (LTCG) from equity shares and equity mutual funds under section 112, incomes from other assets like real estate, unlisted shares etc. are eligible.

However, this rebate is not applicable for gambling winning, online games, betting earnings, game show earnings, virtual digital assets.

Tax rebates under section 87A for old and new regimes

Currently, individuals with a total income of up to ₹5 lakh can claim a tax rebate of up to ₹12,500 under section 87A in the old regime.

However, taxpayers opting for the new tax regime can claim a rebate of up to ₹25,000 under section 87A if the total income is up to ₹7 lakh.

About The Author

rajeev kumar
Rajeev Kumar is a Deputy Editor at Upstox, and covers personal finance stories. In over 11 years as a journalist, he has written over 2,000 articles on topics like income tax, mutual funds, credit cards, insurance, investing, savings, and pension. He has previously worked with organisations like 1% Club, The Financial Express, Zee Business and Hindustan Times.

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