Section 87A Rebate & LTCG Tax under section 112A for FY 2024-25

Rebate under section 87A of Income Tax Act & LTCG under section 112A for the financial year 24-25 under new tax regime

Summary: Under the new tax regime for FY 2024–25, resident individuals can claim a rebate under Section 87A if their total income, excluding special rate income like long-term capital gains (LTCG) under Section 112A, does not exceed ₹7,00,000. The rebate amount is the lower of the calculated tax liability or ₹25,000. This rebate is not applicable to non-residents or other entities and cannot be applied against special rate income. For LTCG under Section 112A—applicable to gains from listed shares and equity-oriented mutual funds held for more than 12 months—the tax rate is 10% for gains realized before July 23, 2024, and 12.5% thereafter. A fixed exemption of ₹1,25,000 on LTCG is available irrespective of the date of sale. Additionally, a basic exemption limit of ₹3,00,000 applies to all income types including LTCG, but indexation benefits and deductions under Chapter VI-A are not permitted on LTCG. Examples clarify how exemption limits and LTCG dates impact tax liability. For instance, if LTCG spans both before and after July 23, the basic exemption and ₹1,25,000 exemption are first applied to post-July gains. Rebate under Section 87A is calculated excluding LTCG, meaning total income must be checked without including special rate income to determine eligibility. If income slightly exceeds ₹7,00,000, marginal relief may be applied to limit the tax burden, but only if the tax exceeds the income increase above ₹7,00,000. Otherwise, no rebate is allowed, and full tax applies.

1. Rebate u/s 87A:

The rebate under this section will be available if total income of the assessee for the financial year 24-25 is upto Rs 7,00,000.

2. Rebate calculation:

Tax payable on total income

Or

Rs 25,000 (it is fixed amount u/s 87A)

Whichever is lower will be the rebate amount.

3. How to calculate tax payable for rebate:

Tax will be calculated on the total income without considering the surcharge & cess for the purpose of determining the rebate. Surcharge & cess will be levied after reducing the rebate amount.

4. Eligible taxpayers:

Only individual resident can avail the benefit of this section irrespective of the age. Non-resident individuals, firms or corporates etc. are not eligible to avail the benefit of this section.

5. Computation of total income:

For the purpose of this section, total income excludes the special rate income i.e LTCG u/s 112A or LTCG u/s 112A etc. If total income excluding special rate income is not exceeding 7,00,000, benefit of rebate can be availed.

6. Rebate benefit not for special rate income:

The benefit of rebate cannot be applied against special rate income.

7. LTCG u/s 112A:

a. This section covers capital gain on the sale of listed shares or equity oriented mutual funds etc.

b. If securities sold after the 12 months from the date of purchase it will be classified in long term category.

c. Tax rate:

1. Tax will be levied @12.5% on LTCG if shares sold on or after 23^rd July 2024 in the financial year 24-25.

2. Tax will be levied @10% on LTCG if shares sold before 23^rd July 2024 in the financial year 24-25.

d. Exemption Limit:

There will be no tax on LTCG of Rs 1,25,000. It will not matter whether capital gain is earned before or after 23^rd July 2024. This means that in the FY 24-25, benefit of 1,25,000 will be applicable. Suppose if LTCG earned by Mr Ashish is 5,00,000 then tax will be paid only on 75,000 after applying the benefit of basic exemption limit.

e. Indexation benefit:

Benefit of indexation cannot be applied against long term capital   gain.

8. Basic exemption limit:

Under new tax regime, basic exemption limit is 3,00,000 irrespective of the age of individual. Benefit of basic exemption limit applies to all the incomes like salary, interest, house property income, LTCG or LTCG etc.

9. Example 1:

LTCG earned in the month of June 2024 of Rs 5,00,000 & LTCG earned in the month of march 2025 of Rs 5,00,000. In this case, tax liability will be:

Firstly, the benefit of basic exemption limit will be adjusted against the capital gain earned on or after 23^rd July. Then the exemption u/s 112A will be applied to the same. If any portion of the exemption remains unutilized, it will be adjusted against the capital gain earned before 23^rd July.

10. Example 2:

LTCG earned in the month of June 2024 of Rs 5,00,000 & no LTCG earned after 23 july. In this case, tax liability will be:

Firstly, the benefit of basic exemption limit will be adjusted against the capital gain earned on or after 23^rd July. Then the exemption u/s 112A will be applied to the same. If any portion of the exemption remains unutilized, it will be adjusted against the capital gain earned before 23^rd July.

11. Example 3:

LTCG earned in the month of June 2024 is Nil & LTCG earned after 23 July is 5,00,000. In this case, tax liability will be:

Firstly, the benefit of basic exemption limit will be adjusted against the capital gain earned on or after 23^rd July. Then the exemption u/s 112A will be applied to the same. If any portion of the exemption remains unutilized, it will be adjusted against the capital gain earned before 23^rd July.

12. Example 4:

LTCG earned in the month of June 2024 is 2,00,000 & LTCG earned after 23 july is 3,00,000. In this case, tax liability will be:

Firstly, the benefit of basic exemption limit will be adjusted against the capital gain earned on or after 23^rd July. Then the exemption u/s 112A will be applied to the same. If any portion of the exemption remains unutilized, it will be adjusted against the capital gain earned before 23^rd July.

13. Example 5:

Now, I am covering a scenario where a person has earned normal income along with special rate income:

In this case, basic exemption limit of 3,00,000 will be adjusted against the normal income. Any unutilized amt then will be adjusted against LTCG. After that exemption u/s 112A of 1,25,000 will be applied against u/s 112A. There is no tax liability in this case.

14. Example 6:

Total income for the purpose of rebate is 6,40,000** excluding special rate income. Rebate can be applied against normal income. Hence there will be no tax liability on normal income. Tax liability will be 9,375 (75,000 * 12.5%) because the benefit of rebate cannot be applied against special rate income.

** While computing total income for the purpose of determining eligibility for rebate, special rate income is not considered. Hence, the total income for rebate calculation is ₹6,40,000 instead of ₹8,40,000.

15. Example 7:

Total income for the purpose of rebate is 7,40,000** excluding special rate income which exceeds the rebate limit. Therefore, in this case, no rebate will be available on the normal income.

** While computing total income for the purpose of determining eligibility for rebate, special rate income is not considered. Hence, the total income for rebate calculation is ₹7,40,000 instead of ₹9,40,000. However, the assessee will be liable to pay tax on the full income.

16. Note:

a. The benefit of basic exemption limit can be applied to LTCG u/s 112A.

b. For calculating total income u/s 87A excludes the special rate incomes.

c. The benefit of rebate cannot be applied to LTCG u/s 112A.

d. The benefit of Ch. VI(A) deductions are not allowed against special rate incomes.

e. Marginal relief cannot be applied against special rate incomes.

17. Marginal relief:

If income of the assessee exceeds the 7,00,000 in such case, rebate will not be available but marginal relief will be available.

a. Tax liability is zero if income of the assessee is upto 7 lakhs. However, if the income of the assessee is 7,20,000 then total liability will be 22,000. While the income has increased by 20,000 but tax liability has increased by 22,000 in such cases tax liability will be the difference between total income reduced by 7,00,000.

Hence, tax liability will be 20,000 in this case.

b. Tax liability is zero if income of the assessee is upto 7 lakhs. However, if the income of the assessee is 7,30,000 then total liability will be 23,000. While the income has increased by 30,000 but tax liability has increased by 23,000 in such cases benefit of marginal relief cannot be applied.

Hence, tax liability will be 23,000 in this case.

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Disclaimer: The views & opinions expressed in this article are solely those of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation. Readers should consult with a qualified professional or tax advisor before making any decisions based on the content of this article. Author will not accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.