Tax computation: Does Section 87A apply if my income is Rs 12 lakh, but total income exceeds the limit?
A resident individual earning Rs 15 lakh in FY26, with a split of Rs 12 lakh from rent/interest and Rs 3 lakh from equity LTCG, is evaluating his tax liability. While Section 87A provides a rebate for incomes up to Rs 12 lakh, confusion arises when special-rate income like LTCG pushes total income above this limit.
- Sep 11, 2025,
- Updated Sep 11, 2025 1:39 PM IST
I am a resident individual with a total income of Rs 15 lakh for FY26, comprising:
Rs 12 lakh from rent and interest income (taxable at normal slab rates), and
Rs 3 lakh from long-term capital gains (LTCG) on equity mutual funds (taxable at special rates under section 112A).
Here’s how I have computed my tax liability:
On the LTCG of Rs 3 lakh, after claiming the exemption of Rs 1.25 lakh under section 112A, the taxable LTCG comes to Rs 1.75 lakh. At the special rate of 12.5%, my tax works out to Rs 21,875. On the Rs 12 lakh rent/interest income, the tax at slab rates is Rs 60,000.
Since section 87A allows a rebate of up to Rs 60,000 where taxable income does not exceed Rs 12 lakh, I assumed that I would still be able to claim the rebate on the slab-rate income component, even though my total income including LTCG goes beyond Rs 12 lakh. Based on this assumption, my tax liability on normal income would be nil, leaving me with only the LTCG tax of Rs 21,875.
However, I am confused because some interpretations suggest that once total income exceeds Rs 12 lakh, the 87A rebate is not available at all—even if the slab-rate income is at or below Rs 12 lakh.
Could you please clarify:
In my case, with total income of Rs 15 lakh (Rs 12 lakh normal income + Rs 3 lakh LTCG), am I eligible for the 87A rebate or not?
If not, does that mean my final tax liability is Rs 81,875 (Rs 60,000 + Rs 21,875), plus cess and surcharge?
How would this compare with a scenario where total income is below Rs 12 lakh (say, Rs 11.8 lakh salary + Rs 80,000 LTCG)?
This distinction is very important for planning my investments and withdrawals. I would appreciate a clear explanation on how section 87A works when income includes both normal slab income and LTCG taxable at special rates.
Advice on tax computation based Finance Bill 2025, new tax regime.
Tax planning often becomes complex when income is spread across different categories, particularly when part of it is taxed at special rates. Section 87A of the Income-Tax Act offers relief to resident individuals by providing a rebate where total income does not exceed Rs 12 lakh under the new tax regime. However, questions arise when taxpayers earn both regular income and long-term capital gains (LTCG), which are taxed separately. The following case studies illustrate how rebate eligibility changes depending on whether total income crosses the threshold, and how this directly impacts the final tax liability for investors.
Case Study 1: Resident individual with income from rent/interest and LTCG
A resident individual earns a total income of Rs 15 lakh in FY26, broken down into:
Rs 12 lakh from rent/interest (taxed at normal slab rates)
Rs 3 lakh from long-term capital gains (LTCG) on equity mutual funds (taxed at special rates under section 112A)
Tax computation:
LTCG of Rs 3 lakh → Exemption of Rs 1.25 lakh under section 112A → Taxable LTCG = Rs 1.75 lakh. Tax at 12.5% = Rs 21,875.
Normal income of Rs 12 lakh → Tax at slab rates = Rs 60,000. Rebate under section 87A is not available because the individual’s total income exceeds Rs 12 lakh.
Total tax liability: Rs 60,000 + Rs 21,875 = Rs 81,875 (plus surcharge and cess, if applicable).
Key takeaway:
Even though only the normal income component is at the ₹12 lakh threshold, the total taxable income exceeds the rebate limit. Therefore, the taxpayer cannot claim the rebate under section 87A.
Case Study 2: Resident individual with salary and LTCG
Suppose another individual has a total income of Rs 11.8 lakh in FY26, comprising:
Rs 11 lakh from salary (taxed at normal slab rates)
Rs 80,000 as LTCG on equity mutual funds (taxed at special rates under section 112A)
Tax computation:
LTCG of Rs 80,000 → Less than the Rs 1.25 lakh exemption limit under section 112A → No tax liability on LTCG.
Normal income of Rs 11 lakh → Tax at slab rates = Rs 45,000. Since total taxable income is below Rs 12 lakh, the taxpayer qualifies for the 87A rebate of Rs 45,000.
Total tax liability: Rs 0 (after rebate).
Where the total income remains below Rs 12 lakh, the 87A rebate fully offsets slab-rate tax liability—even if the taxpayer also earns income taxable at special rates.
I am a resident individual with a total income of Rs 15 lakh for FY26, comprising:
Rs 12 lakh from rent and interest income (taxable at normal slab rates), and
Rs 3 lakh from long-term capital gains (LTCG) on equity mutual funds (taxable at special rates under section 112A).
Here’s how I have computed my tax liability:
On the LTCG of Rs 3 lakh, after claiming the exemption of Rs 1.25 lakh under section 112A, the taxable LTCG comes to Rs 1.75 lakh. At the special rate of 12.5%, my tax works out to Rs 21,875. On the Rs 12 lakh rent/interest income, the tax at slab rates is Rs 60,000.
Since section 87A allows a rebate of up to Rs 60,000 where taxable income does not exceed Rs 12 lakh, I assumed that I would still be able to claim the rebate on the slab-rate income component, even though my total income including LTCG goes beyond Rs 12 lakh. Based on this assumption, my tax liability on normal income would be nil, leaving me with only the LTCG tax of Rs 21,875.
However, I am confused because some interpretations suggest that once total income exceeds Rs 12 lakh, the 87A rebate is not available at all—even if the slab-rate income is at or below Rs 12 lakh.
Could you please clarify:
In my case, with total income of Rs 15 lakh (Rs 12 lakh normal income + Rs 3 lakh LTCG), am I eligible for the 87A rebate or not?
If not, does that mean my final tax liability is Rs 81,875 (Rs 60,000 + Rs 21,875), plus cess and surcharge?
How would this compare with a scenario where total income is below Rs 12 lakh (say, Rs 11.8 lakh salary + Rs 80,000 LTCG)?
This distinction is very important for planning my investments and withdrawals. I would appreciate a clear explanation on how section 87A works when income includes both normal slab income and LTCG taxable at special rates.
Advice on tax computation based Finance Bill 2025, new tax regime.
Tax planning often becomes complex when income is spread across different categories, particularly when part of it is taxed at special rates. Section 87A of the Income-Tax Act offers relief to resident individuals by providing a rebate where total income does not exceed Rs 12 lakh under the new tax regime. However, questions arise when taxpayers earn both regular income and long-term capital gains (LTCG), which are taxed separately. The following case studies illustrate how rebate eligibility changes depending on whether total income crosses the threshold, and how this directly impacts the final tax liability for investors.
Case Study 1: Resident individual with income from rent/interest and LTCG
A resident individual earns a total income of Rs 15 lakh in FY26, broken down into:
Rs 12 lakh from rent/interest (taxed at normal slab rates)
Rs 3 lakh from long-term capital gains (LTCG) on equity mutual funds (taxed at special rates under section 112A)
Tax computation:
LTCG of Rs 3 lakh → Exemption of Rs 1.25 lakh under section 112A → Taxable LTCG = Rs 1.75 lakh. Tax at 12.5% = Rs 21,875.
Normal income of Rs 12 lakh → Tax at slab rates = Rs 60,000. Rebate under section 87A is not available because the individual’s total income exceeds Rs 12 lakh.
Total tax liability: Rs 60,000 + Rs 21,875 = Rs 81,875 (plus surcharge and cess, if applicable).
Key takeaway:
Even though only the normal income component is at the ₹12 lakh threshold, the total taxable income exceeds the rebate limit. Therefore, the taxpayer cannot claim the rebate under section 87A.
Case Study 2: Resident individual with salary and LTCG
Suppose another individual has a total income of Rs 11.8 lakh in FY26, comprising:
Rs 11 lakh from salary (taxed at normal slab rates)
Rs 80,000 as LTCG on equity mutual funds (taxed at special rates under section 112A)
Tax computation:
LTCG of Rs 80,000 → Less than the Rs 1.25 lakh exemption limit under section 112A → No tax liability on LTCG.
Normal income of Rs 11 lakh → Tax at slab rates = Rs 45,000. Since total taxable income is below Rs 12 lakh, the taxpayer qualifies for the 87A rebate of Rs 45,000.
Total tax liability: Rs 0 (after rebate).
Where the total income remains below Rs 12 lakh, the 87A rebate fully offsets slab-rate tax liability—even if the taxpayer also earns income taxable at special rates.