Can I get Section 87A rebate on ₹11 lakh salary and ₹5 lakh LTCG?

A taxpayer with a salary income of ₹11 lakh and long-term capital gains (LTCG) of ₹5 lakh from the sale of equity mutual funds may wonder whether they are eligible for tax rebate under Section 87A of the Income Tax Act. The availability of this rebate depends on the chosen tax regime and the nature of income, especially whether it falls under normal slab taxation or special rate taxation such as capital gains from equity investments.

Today's Q&A explains such details in response to a query by a reader.

If a taxpayer opts for the old tax regime, he is eligible for a rebate under section 87A if his total taxable income does not exceed 5 lakh rupees. The rebate is available up to ₹12,500 against tax liability arising from income of any nature except long-term capital gains arising from sale of listed shares and equity-oriented schemes. So a person is entitled to claim a rebate under section 87A even against long-term capital gains on any capital assets except those arising on sale of listed shares and equity-oriented schemes.

This rebate is even available against short-term capital gains arising from sale of listed shares and units of equity-oriented schemes.

Please note this rebate is not available against any tax liability in respect of income on which flat rate of tax is payable.

So this rebate is not available against long term capital gains of all nature as well as short term capital gains arising on sale of listed equity shares and units of equity-oriented schemes.

Since your salary income, which is treated as normal income and taxed at slab rate, does not exceed the threshold of ₹12 lakh, you will get full rebate against your tax liability on normal income. Since this rebate is not available against long-term capital gains on equity-oriented mutual funds, you will have to pay tax on long-term capital gains of ₹5 lakh.

The initial long-term capital gains of ₹1.25 lakh are taxed at zero rate; your tax liability is restricted @ 12.50 on the balance long-term capital gains of ₹3.75 lakh.