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Confused about taxes? Understanding capital gains and Section 80C with 12 Lacs salary

Mihir

Mihir Tanna  |1053 Answers  |Ask -

Tax Expert - Answered on Feb 15, 2025

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more
Asked by Anonymous - Feb 01, 2025Hindi
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If i have 12 Lacs salary but i have 1lac equity cap gains would the sec87 rebate of 60k still apply on my 12L income? Or for that matter of fact if my income is 11L but have cap gains of 50k would it mean zero tax?

Ans: 87A rebate is not available for special rate income but if taxable income is upto 12 lacs, rebate will be available to the extent of other income which is not taxable at special rate.

In your case, as taxable income is likely to exceed 12 lacs, accordingly, rebate will not be available.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8442 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 11, 2025

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If income consists of salary ( less than Rs 12 lakh) and ltcg on equity and debt mutual funds and exceeds Rs 12 lakh, will 87A rebate allowed by IT ?
Ans: Let us now assess the situation in a very simplified way.

You are earning a salary.
Your salary is less than Rs 12 lakh per year.
You also have long-term capital gains (LTCG).
You have LTCG from equity mutual funds.
You also have LTCG from debt mutual funds.
Your total income, including LTCG, is more than Rs 12 lakh.

So, will you get the Section 87A rebate?

Let us look at the law and assess it properly.

Who Can Claim 87A Rebate?

You must be a resident individual in India.

Your total taxable income must be less than or equal to Rs 7 lakh.

If income crosses Rs 7 lakh, even by Rs 1, rebate will not apply.

The rebate under Section 87A is Rs 25,000 (for FY 2024-25) under the new tax regime.

If you are under the old tax regime, rebate is Rs 12,500 if income is below Rs 5 lakh.

What is Total Taxable Income?

It includes salary, capital gains, interest, rental, etc.

It means your entire income after deductions.

Deductions include 80C, 80D, NPS, home loan interest, etc.

Even capital gains are part of total taxable income.

LTCG on equity funds is tax-free up to Rs 1.25 lakh now.

Anything above Rs 1.25 lakh in LTCG will be taxed at 12.5%.

Debt mutual fund gains are taxed as per your income tax slab.

So, LTCG is included in total income.

Impact of LTCG on Rebate Eligibility

If total income, after all deductions, is above Rs 7 lakh, you are not eligible.

Even if salary is low, LTCG can push income above Rs 7 lakh.

So, 87A rebate is not available if income crosses Rs 7 lakh.

No partial rebate is given if it exceeds by just a small amount.

Simple Summary With Example

Salary: Rs 6.5 lakh

LTCG on equity: Rs 2 lakh

Exempt LTCG: Rs 1.25 lakh

Taxable LTCG: Rs 75,000 (tax at 12.5%)

Total taxable income: Rs 7.25 lakh

Since income > Rs 7 lakh, no rebate under 87A allowed.

You will pay tax on full income as per new tax regime.

Suggestion from Certified Financial Planner

You can use deductions like 80C, 80D, NPS, etc.

These deductions help in bringing total income below Rs 7 lakh.

If total income is reduced to Rs 7 lakh or less, then 87A rebate will apply.

Plan gains carefully to avoid crossing Rs 7 lakh limit.

Spread sale of equity mutual funds across different financial years.

Or use loss harvesting to lower LTCG in the same year.

Key Reminders on Mutual Fund Taxation Rules

For equity mutual funds:

LTCG above Rs 1.25 lakh taxed at 12.5%.

STCG taxed at 20%.

For debt mutual funds:

Both LTCG and STCG taxed as per your income slab.

No indexation benefit anymore.

This increases tax burden significantly for high-income investors.

Disadvantages of Index Funds

Index funds don’t beat the market.

They only match the market returns.

No downside protection during falling markets.

Fund manager has no control over stock selection.

All stocks in index are included even if they perform poorly.

Volatility is high during market corrections.

No active risk management.

They do not suit goal-based long-term investing.

Benefits of Actively Managed Funds

Expert fund managers select high-quality stocks.

They aim to beat market returns.

More research-backed approach.

Better downside risk control.

Flexibility in asset allocation and stock selection.

Good for long-term wealth creation with proper diversification.

Ideal for retirement, children’s education, and wealth building.

Disadvantages of Direct Mutual Funds

No expert guidance is available.

You may choose wrong funds without support.

Portfolio can become unbalanced.

No monitoring or review by experts.

Performance may be inconsistent without strategy.

Direct plans may seem cheaper but can lead to losses.

Why Regular Funds via CFP are Better

Certified Financial Planners guide you on the right fund mix.

You get regular reviews and updates.

Portfolio is aligned to your goals and risk.

You get handholding during market ups and downs.

Helps in staying disciplined and systematic.

Mistakes are avoided through expert review.

Final Insights

Section 87A rebate is simple but strict.

It is based on your total income after deductions.

LTCG on mutual funds is fully considered in total income.

If total income exceeds Rs 7 lakh, rebate is lost.

You must plan gains and deductions wisely.

Reduce LTCG through staggered redemptions.

Use tax-saving options under 80C, 80D, NPS, etc.

Avoid relying on index funds.

Choose active mutual funds with better performance scope.

Avoid direct funds without proper knowledge.

Get help from a Certified Financial Planner.

Your financial journey will be safer and more confident.

Tax saving and goal achievement can go together.

Don’t miss opportunities to plan better.

Tax efficiency and smart fund choices matter every year.

A good planner will help you stay tax-smart and wealth-ready.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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