The Union Budget 2025-26 brought welcome news for salaried taxpayers in India, especially those opting for the New Tax Regime. A key highlight is the effective zero-tax benefit on incomes up to ₹12 lakh, thanks to the revised Section 87A rebate, which now offers up to ₹60,000 in tax relief. But here's the catch—not everyone is eligible for this benefit, and not all income types qualify.
If you're assuming that all income up to ₹12 lakh is tax-free under any circumstance, it’s time to dig a little deeper. Let’s understand who can claim this benefit, who can’t, and why certain salaried individuals might still have to pay tax despite falling under the ₹12 lakh threshold.
Under the New Tax Regime, individuals with an annual taxable income up to ₹7 lakh already benefited from full tax rebate through Section 87A. However, in Budget 2025-26, this threshold was effectively enhanced through increased rebate provisions.
Now, individuals earning up to ₹12 lakh per annum can enjoy zero income tax, provided their entire income is eligible under the regime and falls under certain income categories—primarily salary and pension.
But here's the important bit: this relief is not universal, and it doesn’t apply to every type of income. There are key exceptions that many taxpayers are unaware of.
One of the major exclusions from the rebate benefit is capital gains. Both short-term and long-term capital gains fall outside the ambit of Section 87A. Here’s a breakdown:
Short-Term Capital Gains (STCG):
Profits from selling equity shares held for less than a year are taxed at 15%, irrespective of total income.
Long-Term Capital Gains (LTCG):
Profits on equity shares held for more than one year are tax-free up to ₹1 lakh annually. But gains exceeding ₹1 lakh attract 10% tax, without indexation benefits.
Even if your total income is under ₹12 lakh, any capital gains will still be taxable under their respective rules. For instance, if your salary is ₹10 lakh and you earn ₹3 lakh through capital gains, your salary may qualify for rebate under Section 87A, but the ₹3 lakh capital gain will still be taxed.
The zero-tax benefit also does not apply to individuals whose primary income comes from business or profession. Business income is treated separately under the Income Tax Act and follows different tax slabs and deductions. Therefore, even if your total business income is ₹12 lakh or less, you won’t qualify for the same rebate as a salaried individual.
Taxpayers earning from freelancing, consultancy, or running a small business need to plan more carefully and cannot rely solely on the new tax regime’s standard rebates.
This tax relief is tailored specifically for salaried individuals and pensioners who have no other significant sources of income like capital gains or business income. For them, the new rebate provides genuine savings and simplifies their tax filing process.
However, for individuals with mixed income sources, it’s vital to evaluate:
What percentage of your income comes from salary?
Are you earning capital gains or rental income?
Do you have business profits that alter your taxable income?
The New Tax Regime certainly makes taxation simpler for many salaried people, offering a straightforward way to save on taxes without the hassle of claiming deductions. But the zero-tax benefit on ₹12 lakh income is not a blanket exemption.
If your income includes capital gains, business earnings, or other non-salary components, you could still end up paying taxes. That’s why it’s crucial to understand what type of income you earn and plan accordingly.
Pro tip: Before making any decisions or filing returns, consult a qualified tax advisor. This ensures you make the most of the available rebates while staying compliant with the law—and avoiding any surprises at the time of assessment.
