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Can the Section 87A rebate be used against capital gains tax under the new tax regime?

balwant jain
By Balwant Jain

3 min read | Updated on May 06, 2026, 10:12 IST

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SUMMARY

Can the 87A rebate under the new tax regime be adjusted against LTCG tax? Expert explains tax treatment, rebate limits, and capital gains tax liability for FY 2025-26.

section 87 a rebate capital gains tax

Under the New Tax Regime, an individual resident taxpayer is eligible for a tax rebate of up to ₹60,000 against his tax liability in respect of normal income, which is taxed at the slab rate. | Image: Shutterstock.

Many salaried taxpayers often find themselves confused when different types of income, like salary, interest, dividends, and capital gains, come together in a single financial year. The confusion becomes sharper under the new tax regime, especially when it comes to how rebates and special tax rates interact.

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In this case, the taxpayer has raised a doubt for FY 2025-26, with income from salary, interest, dividends, and gains from redemption of an Equity Linked Saving Scheme (ELSS). The key question is whether the remaining Section 87A rebate can be adjusted against tax on long-term capital gains or whether tax must be paid separately at the applicable rate.

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

Question: I have some doubts about tax on my income for FY 2025-26, for which the return is to be filed by 31st July 2026. The details of my income during the said period are as follows:
Salary ₹7,50,000
Interest income ₹3,70,000
Dividend income ₹20,000
Total ₹11,40,000
During the same period, I have redeemed my Equity Linked Saving Scheme for ₹2,40,000. I had invested ₹1,00,000 on 30.03.2018. The long-term capital gain is ₹1,40,000. Taxable amount of long-term capital gains (Net of initial tax-free LTCG of ₹1.25 lakh ) ₹15,000. Will I get the benefit for the remaining rebate out of the overall rebate available of ₹60,000 under Section 87A against the tax liability on such taxable long-term capital gains? Or I have to pay tax on ₹15,000 @ 12.50%.
Answer: Under the New Tax Regime, an individual resident taxpayer is eligible for a tax rebate of up to ₹60,000 against his tax liability in respect of normal income, which is taxed at the slab rate. This rebate is available only against the tax liability in respect of normal income taxed at the slab rate, and there is no provision for the set off of the unutilised rebate against the tax liability in respect of special income taxed at a special rate.
Since your normal income is below ₹12 lakh, you will get a rebate only in respect of the tax liability of ₹54,000 on the normal income of ₹11.40 lakhs The balance of ₹6,000 rebate under Section 87A cannot be utilised against your tax liability on Long Term Capital Gains in respect of redemption of Equity Linked Saving Scheme.
Since the initial LTCG of ₹1.25 lakh on equity-oriented schemes is taxed at zero rate and thus effectively comes tax-free, you will have to pay tax of ₹1,875 at a flat rate of 12.50% on the balance LTCG of ₹15,000 and cess of ₹75, taking your total tax liability to ₹1,950.
Have a personal finance, mutual fund, or income tax query? We will try to get them answered by experts. Write to sangeeta.ojha@rksv.in
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Disclaimer: The views and opinions expressed above are those of respective experts/commentators and do not reflect the views of Upstox. The above Q&A is only for informational purposes and should not be considered investment or tax advice from Upstox. Please consult a tax expert for your complex tax problems.

About The Author

balwant jain
Balwant Jain is a Mumbai-based tax and investment expert.

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