Tax on gold jewellery sale: Can Section 87A rebate reduce LTCG tax if total income is within ₹12 lakh?

Many taxpayers under the new tax regime assume that no income tax is payable if their total income remains below ₹12 lakh. However, the rules work differently when part of the income comes from Long Term Capital Gains (LTCG), such as gains arising from the sale of old gold jewellery.

A common area of confusion is whether the rebate available under Section 87A can reduce tax liability on LTCG taxed at special rates.

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

Under the New Tax Regime, an individual resident taxpayer is eligible for a tax rebate of up to ₹60,000 under Section 87A against tax liability on normal income taxable at slab rates, provided such income does not exceed ₹12 lakh.

However, while determining the ₹12 lakh threshold, income taxed at special rates is not considered, irrespective of the amount of such income.

Please note that if the pension is received from your ex-employer, from a superannuation policy bought by your employer, or from the Provident Fund department, the ₹12 lakh threshold will be computed after deducting the standard deduction of ₹75,000 from pension income.

The rebate under Section 87A is not available against tax liability on special-rate income such as LTCG, which is taxed at a flat rate of 12.5%, or short-term capital gains on listed shares and equity-oriented mutual funds taxed at 20%.

Since your normal income is ₹5.70 lakh, which is below the ₹12 lakh threshold, you are eligible for rebate of ₹8,500 under Section 87A against the tax liability arising on pension and bank interest income taxable at slab rates.

However, you will still have to pay tax on LTCG of ₹6.10 lakh at 12.5%, since Section 87A rebate is not available against such income under the New Tax Regime.

Accordingly, your final tax liability works out to ₹79,300, including cess.