Capital Gains Subject to Same Tax Rates Even with Section 87A Rebate

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Posted by AI on 2025-08-13 14:42:17 | Last Updated by AI on 2025-08-13 16:19:08

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Despite the recent rebate extension for salaried taxpayers, profits from capital assets remain subject to Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) taxes at standard rates.

Earlier, in the union budget for 2021-22, the government had announced a new provision under Section 87A of the Income Tax Act. According to this, individuals with net income up to Rs 12.5 lakh would be eligible for a rebate of Rs 12,500.

This meant that individuals could earn income up to Rs 13.5 lakh without attracting any taxes. However, in the recent Union Budget 2023, the government has now extended the rebate to Rs 15,000, thereby increasing the tax-free income limit to Rs 13.75 lakh.

But, despite the rebate extension, any income derived from profits of capital assets continues to be taxed at the usual LTCG/STCG tax rates, as per the income tax laws.

The profits gained from the sale of long-term assets (held for more than 2 years) are subject to a tax rate of 20% along with the 4% cess and surcharge. On the sale of short-term assets, the gains are taxed at the slab rate of the taxpayer.

Thus, even if you are someone with an income of Rs 10 lakh, and you make a profit of Rs 5 lakh from the sale of an asset you held for more than two years, you are subject to a tax liability of 20% on the LTCG amount, i.e., Rs 1 lakh (20% of Rs 5 lakh).

This applies even if your total income, after considering the rebate, is less than the taxable income of Rs 5 lakh.

These tax rules remain the same regardless of whether the taxpayer is a salaried employee or a freelancer, a pensioner, or an elderly individual.

The new tax regime, which offers lower taxes at a reduced rate, does not apply to income arising from profit from the sale of listed securities, property, and other capital assets.

Thus, the extension of Section 87A rebates benefits for the majority of salaried employees means they can receive a tax-free income boost, but it has no impact on their capital gains tax obligations.

Stay tuned for further updates on the union budget and tax-related news. Hedge your capital gains tax risk with informed investments.

Speak to a financial advisor to grasp the impact of the capital gains tax and to receive advice on profitable deployment of your surplus funds.

The writer is a finance expert with extensive experience in investment planning. His insights simplify complex finance topics and equip readers to make informed decisions about all aspects of personal finance, including taxes, insurance, investments, and retirement.

He is passionate about helping people learn how to manage their finances better for a secure future. in.

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