Section 87A rebate: Can HUFs claim it? Is it available on capital gains?

Confused about whether a Hindu Undivided Family (HUF) can claim the Section 87A tax rebate? Or wondering if the rebate applies to income taxed at special rates such as short-term and long-term capital gains? These are among the common questions taxpayers have while filing their income tax returns. Tax and investment expert Balwant Jain explains who can claim the rebate, when it is available and how the basic exemption limit can help reduce tax on capital gains.

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

In contrast, under the new tax regime, a higher tax rebate of ₹60,000 is available against the tax liability on normal income taxed at slab rates if the income does not exceed ₹12 lakh during the financial year. The rebate cannot be claimed against tax liability in respect of income taxed at special rates, such as short-term and long-term capital gains on listed shares and equity-oriented schemes.

So, to answer your first question, this rebate is not available to an HUF. It is available only to a resident individual.

To answer your second question, the income tax laws provide that if the normal income, on which tax is payable at slab rates, is lower than the applicable basic exemption limit, the shortfall in the basic exemption limit can be set off against income on which tax is payable at a flat rate, provided the taxpayer (individual or HUF) is a tax resident of India.

Accordingly, you can adjust your short-term and long-term capital gains on listed shares and equity-oriented schemes if your normal income is below the applicable basic exemption limit, to the extent of such shortfall. Please note that this facility is available only to tax residents.

The amount of the basic exemption limit depends on your age and the tax regime chosen by you.

If you choose the new tax regime, the basic exemption limit up to which no tax is payable is ₹4 lakh for all individuals, irrespective of age.

• Up to 60 years: ₹2.5 lakh

• Between 60 and 80 years: ₹3 lakh (applicable to you)

• Above 80 years: ₹5 lakh

Therefore, a tax-resident HUF and a tax-resident individual can set off the shortfall in the basic exemption limit against taxable long-term and short-term capital gains on listed equity shares and equity-oriented schemes.