Section 87A Rebate in the New Tax Regime

Section 87A Rebate in the New Tax Regime: How It Really Works When You Also Have Capital Gains

A simple breakdown for AY 2026-27  why your ₹12 lakh income isn't always fully rebate-eligible

If you've filed under the new tax regime and also sold some mutual funds or shares during the year, you've probably run into a confusing moment: your total income looks like it's under ₹12 lakh, but the tax software still shows some tax payable. Is that a bug? Actually, no  it's exactly how the rules are meant to work. Let's break down why.

The Rule in Plain Words

Under the new tax regime, resident individuals get a rebate under Section 87A of up to ₹60,000  or the actual tax payable, whichever is lower as long as their income stays within ₹12 lakh.

What trips people up is this: the ₹12 lakh limit isn't about your total income in the everyday sense. It specifically refers to income chargeable to tax under Section 115BAC(1A) the section that governs the new regime's slab rates.

Why Capital Gains Break the Simple Math

  • The ₹12 lakh check applies mainly to your normal, slab-rate income.
  • The rebate of up to ₹60,000 is applied only to the tax on that normal income.
  • Tax on special rate income LTCG u/s112A, STCG u/s111A, lottery winnings is calculated separately and no rebate applies.
  • Section 112A(6) blocks Section 87A rebate for LTCG under that section. CBDT Circular No.13/2025 confirms this.

How the Calculation Actually Flows

  1. Calculate normal income.
  2. If normal income ≤ ₹12 lakh, rebate up to ₹60,000.
  3. Calculate special-rate income separately.
  4. Apply marginal relief where applicable.

Examples

Case 1: Normal Income ₹10 lakh + LTCG ₹1 lakh → Rebate applies on normal income. Only LTCG taxed.

Case 2: Normal Income ₹10 lakh + LTCG ₹2.5 lakh → Rebate still applies on normal income; LTCG taxed separately.

Case 3: Normal Income ₹11.5 lakh + Small LTCG → Rebate continues for normal income.

What This Means in Practice

Normal income up to ₹12 lakh can remain effectively tax-free under the new regime, while capital gains are taxed separately.

Income SlabRate
Up to ₹4 lakhNil
₹4–8 lakh5%
₹8–12 lakh10%

A Word of Caution While Filing

Don't manually claim rebate against capital gains. Let the ITR utility calculate the split correctly. Wrong claims may lead to demand notices.

Disclaimer: This article is for general informational purposes and reflects provisions for AY 2026-27 based on CBDT Circular No.13/2025 and Section 112A(6). Consult a Chartered Accountant for case-specific advice.