87A tax rebate benefits are lost if non-taxable MF LTCG is added in ITR! (2024)

Last Updated on July 2, 2022 at 9:17 am

A viewer on our YouTube channel asks, “I have a net taxable income of around 4.8L( excluding LTGC, after all the deductions) and LTGC( from Equity MF ) of 37k. So the problem I am facing is that whenever I am putting the LTGC amount in 112A then it is added back to my net income (4.8L+ 37K ) =5.27 Lac and I’m not getting the benefit of Rs. 12,500 rebate under section 87A and eventually taxed around 14k”. In this article, let us discuss this curious problem.

What is the 87A tax rebate? Income tax up to Rs. 2.5 lakhs is tax-free for those below 60 years of age. The 87A rebate allows us to reduce the tax on net total income* to zero provided the net total income is less than or equal to Rs. 5 lakhs.

* after 80C, 80D etc. deductions under the old tax regime or without these in the new tax regimen. We shall use the term “net total income” repeatedly below as it is key to this problem.

Let us consider a net total income of Rs. 4,80,000 without any equity LTCG. The tax to be paid is Rs. 9000 (before cess). The 87A rebate to be applied (before cess) is Rs. 9000. Therefore the tax to be paid is zero.

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Now let us include to this Rs. 4,80,000 an equity LTCG of Rs. 20,000. So the net total income = Rs. 5,00,000. It is important to understand that the 87A rebate does not apply to any capital gains.

The tax before cess is still Rs. 9,000 as equity LTCG equal to or below Rs. one lakh is tax-free. The 87A rebate is Rs. 9000 and the tax payable is zero.

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87A tax rebate benefits are lost if non-taxable MF LTCG is added in ITR! (2024)

FAQs

Is US 87A rebate available for Ltcg? ›

Is income tax rebate u/s 87A available on Long Term Capital Gains (LTCG)? Yes, rebate u/s 87A is available on sale of long-term capital assets, but it is not applicable in case of long-term equity shares and mutual funds i.e. on Long Term Capital Gains from equity or others as specified under section 112A.

How is section 87A rebate calculated with an example? ›

To calculate rebate under section 87A, calculate your gross income and subtract the available deductions under Sections 80C to 80U. Now, if your net taxable income is less than Rs. 5 lakhs, you are eligible for the rebate upto Rs 12500 on the tax payable before health and education Cess.

View Details ›

Is rebate available on Ltcg 112A? ›

LTCG from equity shares and equity mutual funds:“If an individual's total income includes any Long-term Capital Gain (LTCG) under section 112A from sale of listed equity shares or units of an equity mutual funds, rebate under Section 87A is not allowed on the tax payable arising on such long term capital gain,” said ...

Discover More Details ›

Is long term capital gains tax on mutual funds exempt under section? ›

Section 112A allows long-term capital gains on the sale of listed equity shares, equity-oriented mutual funds, and business trust units to be taxed. Following the abolition of the exemption under section 10(38), the said section was established in Budget 2018. It is effective beginning with the fiscal year 2018-19.

Are long-term capital gains added to taxable income? ›

Gains from the sale of assets you've held for longer than a year are known as long-term capital gains, and they are typically taxed at lower rates than short-term gains and ordinary income, from 0% to 20%, depending on your taxable income.

View Details ›

Is Ltcg ordinary income? ›

Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less. Short-term capital gains are taxed as ordinary income at rates up to 37 percent; long-term gains are taxed at lower rates, up to 20 percent.

Is LTCG added to taxable income in India? ›

It means you need to remain invested in these funds for at least three years to get the benefit of long-term capital gains tax. If redeemed within three years, the capital gains will be added to your income and will be taxed as per your income tax slab rate.

Read On ›

How to avoid LTCG tax on mutual funds? ›

By implementing tax harvesting, you can strategically manage your equity mutual fund holdings to keep long-term returns below the Rs. 1 lakh threshold, thus avoiding long-term capital gains tax upon redemption.

Find Out More ›

Can we claim LTCG exemption in new tax regime? ›

Long-Term Capital Gains (LTCG): Taxpayers can still avail themselves of the deduction on long-term capital gains from the sale of equity shares or equity-oriented mutual funds, up to a limit of Rs 1 lakh, under the new regime.

Do I pay capital gains if I reinvest the proceeds from sale? ›

Do I Pay Capital Gains if I Reinvest the Proceeds From the Sale? While you'll still be obligated to pay capital gains after reinvesting proceeds from a sale, you can defer them. Reinvesting in a similar real estate investment property defers your earnings as well as your tax liabilities.

Which long-term capital gains are not covered under section 112A? ›

Long-term Capital Gains Under Section 112A

The period of holding should be more than one year to qualify for taxation under section 112A. The tax rate is 10% above a threshold exemption of Rs 1 lakh. This means the long-term capital gains covered under section 112A are not taxable up to Rs 1 lakh per financial year.

Get More Info ›

What are the exemptions available for long term capital gains? ›

Adjustment of Long-term Capital Gain (Exemption)

The exemption limit is Rs. 5,00,000 for resident individual of the age of 80 years or above. The exemption limit is Rs. 3,00,000 for resident individual of the age of 60 years or above but below 80 years.

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What till Ltcg is exempt from tax in India? ›

Rs.1 lakh exemption

An exemption of up to Rs. 1 lakh is available each financial year for LTCG tax on sale of shares or mutual fund units. Investors can time the exit from their investments by spreading the redemption over two financial years to avail of the tax exemption limit for both years.

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What is the exemption for capital gains tax? ›

Capital gains tax rates

A capital gains rate of 0% applies if your taxable income is less than or equal to: $44,625 for single and married filing separately; $89,250 for married filing jointly and qualifying surviving spouse; and. $59,750 for head of household.

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Is capital gain tax exempted for senior citizens and pensioners in India? ›

For senior citizens, short term capital gains will be exempted from tax if the limit of 15% is not altered. In addition to this, there is a tax exemption provision under section 80 L. As per this section, they can avail an exemption on interest up to Rs 12,000 p.a.

See Details ›