Tax comparison: ₹11.5 lakh salary + ₹1 lakh LTCG vs ₹10.5 lakh salary + ₹1 lakh LTCG in FY 2025-26

One of our readers, R N Ramadas, recently requested us to compare his tax liability for FY 2025-26 (AY 2026-27) in two scenarios under the new tax regime. His main source of income is salary and interest. But in both scenarios, he requested to calculate the liability assuming ₹1 lakh LTCG from equity mutual funds.

In the following paragraphs, we have calculated the tax liability in both scenarios. But before getting into details, please keep in mind the following key points about the new tax regime in FY 2025-26.

• Income up to ₹12 lakh is tax free due to a rebate of up to ₹60,000 under Section 87A. But this rebate will not apply to income from any asset for which special interest rates have been provided in the Income Tax Act, 1961 (Check list of all special rate assets).

• Section 87A rebate will not apply even on your normal income if the total income is above ₹12 lakh. For instance, if normal income (after standard deduction) is ₹11 lakh and LTCG from equity MF is ₹1.25 lakh, then the Section 87A rebate will not be applicable.

• For salaried employees, there is a standard deduction of ₹75,000. So, when calculating tax on salary, you can deduct ₹75,000 from the total salary and consider the balance for calculating tax as per the slab rates.

• There is an exemption of ₹1.25 lakh on LTCG from equity mutual funds and equity shares under the new tax regime.

• ₹12 lakh is not the exemption limit in the new regime. The exemption limit is only ₹4 lakh. Tax becomes NIL on income up to ₹12 lakh due to the Section 87A rebate.

Now, let's look at both scenarios given by Ramadas:

Please note that in both scenarios, Section 87A rebate is applicable as the total income (after standard deduction) is less than ₹12 lakh. And tax on LTCG in both cases is Nil because the total long-term gain is less than ₹1.25 lakh.