Archive · 13 Sep 2026
₹12.75 Lakh Tax-Free Limit Does Not Cover Capital Gains
The government has announced that some people will pay no regular income tax on income up to ₹12 lakh under the new tax system.
Salaried people may have a higher effective limit of ₹12.75 lakh because of the standard deduction.
This does not mean every type of income below that amount is tax-free.
Profits from selling shares or certain mutual funds are called capital gains.
These profits are taxed using separate rates instead of normal income-tax slabs.
Because of this, the Section 87A rebate usually cannot cancel the tax on those gains.
Short-term eligible equity gains are generally taxed at 20%.
Long-term eligible gains are generally taxed at 12.5% after a ₹1.25 lakh exemption.
The new tax regime offers a Section 87A rebate for eligible normal income up to ₹12 lakh from financial year 2026-27.
For salaried taxpayers, the effective zero-tax threshold can rise to ₹12.75 lakh after the ₹75,000 standard deduction.
The rebate generally applies only to income taxed at slab rates, not capital gains taxed at special rates.
Short-term gains on specified listed shares and equity-oriented funds are generally taxed at 20% under Section 111A.
Long-term gains under Section 112A are taxed at 12.5%, with the first ₹1.25 lakh of eligible gains exempt.
- Who
- Individuals and salaried taxpayers using the new tax regime; Finance Minister Nirmala Sitharaman announced the tax changes.
- What
- The Section 87A rebate can make eligible normal income tax-free up to ₹12 lakh, or effectively ₹12.75 lakh for salaried taxpayers, but it generally does not cover capital-gains tax.
- When
- The new income-tax provisions are stated to apply from financial year 2026-27.
- Where
- The announcement was made in the Union Budget; no specific location is stated.
- Why
- Capital gains are taxed at special rates rather than ordinary slab rates, so the Section 87A rebate generally cannot be used against them.
- Normal-income limit
- ₹12 lakh under the new tax regime
- Salaried effective limit
- ₹12.75 lakh after the ₹75,000 standard deduction
- Relevant rebate
- Section 87A
- Short-term equity gains
- Generally taxed at 20% under Section 111A when specified conditions are met
- Long-term equity gains
- Generally taxed at 12.5% under Section 112A
- Long-term gain exemption
- The first ₹1.25 lakh of eligible gains is exempt
- Non-resident treatment
- The 20% short-term-gains tax applies to the entire gain because non-residents cannot adjust normal-income shortfalls against the basic exemption limit for such gains