CBDT’s Guidelines on 12 Lakh Tax Rebate: Capital Gains and Tax Implications

Introduction

The Union Budget 2025 made a substantial adjustment to India's income tax system by establishing a tax refund on yearly income of up to Rs 12 lakh. Individuals earning up to Rs 12 lakh would not be required to pay income tax under the new tax regime. However, this exemption does not apply to all forms of income; special rate income, such as capital gains, is free from this refund.

This article gives an in-depth explanation of capital gains exemptions, the Rs 12 lakh tax rebate, and how it affects Indian taxpayers.

What is the Rs 12 lakh Income Tax Rebate?

The government's new income tax relief policy exempts persons with a total yearly income of up to Rs 12 lakh from paying any tax. This is a significant step toward simplifying tax compliance and easing the load on middle-class taxpayers.

Key Features of the Rs 12 lakh Tax Rebate:

• Applicable under the new tax structure.
• Only applies to regular income (e.g., salary, company revenue).
• Special-rate income, such as capital gains, is excluded.
• Surcharge and cess still apply to eligible revenues.

Why are capital gains excluded from the Rs 12 lakh rebate?

Capital gains are classified as special rate income, which means they are taxed at set rates under the Income Tax Act rather than being included in the standard tax brackets.

The government intends to provide tax relief to salaried individuals and small company owners while keeping investment income, notably from stocks, real estate, and other capital assets, taxable.

Capital Gains and Their Tax Implications

1. Short-Term Capital Gains (STCG)

• Gains from selling equity shares or equities-oriented mutual funds within a year are taxed at 15% under Section 111A.
• Other assets (real estate, gold, etc.) sold within three years are taxed at the standard slab rates.

2. Long-Term Capital Gain (LTCG)

• If equity shares or mutual funds are sold after one year, any profits exceeding Rs 1 lakh per year are taxed at 10% (without indexation) under Section 112A.
• LTCG for real estate, gold, and other assets is taxed at 20% (with indexation advantages) under Section 112.

How Capital Gains are Taxed Despite the Rs 12 lakh rebate.

If a taxpayer earns Rs 10 lakh and has a capital gain of Rs 3 lakh, the Rs 3 lakh capital gain is taxed individually at the relevant rate, even if the total income is Rs 13 lakh.

Tax implications for salaried individuals.

Employees with salaries of up to Rs 12 lakh gain the most from this tax relief. They will, however, be taxed individually on any capital gains they generate.

Investors and Traders

Those who regularly trade stocks, mutual funds, or real estate will not benefit from the refund if they make big financial gains.

For Small Business Owners

Business income up to Rs 12 lakh is eligible for the refund, but capital gains from asset sales would still be taxed.

How Can I Maximize My Tax Savings?

• Invest in tax-saving instruments like as PPF, NPS, and ELSS to reduce your taxable income.
• Use the real estate capital gains exemptions provided by Sections 54, 54F, and 54EC.
• Hold stock investments for at least a year to benefit from LTCG tax rates.

Conclusion

The Rs 12 lakh income tax rebate is a significant relief for middle-class taxpayers, but it does not cover capital gains, which will be taxed separately at their respective rates. Taxpayers should proactively plan their income and assets to reduce tax liability and maximize deductions.

Visit myITRonline for expert income tax filing and assistance that makes tax compliance simple.

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