Could capital gains cost you your tax rebate eligibility?

Budget fails to offer clarity on whether capital gain will affect eligibility for section 87A rebate

- Anil Poste

In Budget 2025-26, finance minister Nirmala Sitharaman raised the tax-rebate threshold under Section 87A of the Income Tax Act from ₹7 lakh to ₹12 lakh. With the standard deduction of ₹75,000, the threshold is ₹12.75 lakh for salaried individuals.

Though the announcement was widely welcomed, it failed to address a critical question - does income from capital gains affect a person's eligibility for the rebate? In other words, if a person with a ₹12 lakh salary earns an additional ₹1 lakh from capital gains, will they lose the rebate or will they only have to pay tax on the capital gains?

This confusion isn't new. Even with the existing ₹7 lakh rebate, experts are confused over whether capital gains are clubbed under total income when determining whether a person is eligible for a rebate. Mint reached out to the Central Board of Direct Taxes, but experts said ambiguity still remains.

What did the CBDT say? V Rajitha, official spokesperson for CBDT, said the tax treatment depends on the wording of the finance bill - specifically whether capital gains are considered part of a person's normal income or not when determining their eligibility for a rebate.