Rs 12.5 Lakh Relief from Income Tax not Applicable to Businesses, Capital Gains? Know Here

The Union Budget 2025-26 had introduced a significant tax relief for salaried individuals under the new tax regime.

Effective from the financial year 2025-26, individuals opting for the new regime are entitled to a full tax rebate of up to Rs. 60,000 under Section 87A of the Income-tax Act if their net taxable income does not exceed Rs. 12,00,000/- . With the aid of standard deduction, this effectively means zero tax liability for such taxpayers.

However, taxpayers must duly understand that this relief does not extend to all types of income. Specifically, incomes categorized under “special rate income”, such as capital gains and certain business incomes, are excluded from this rebate.

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Understanding the Scope of the Rs 12 Lakh Tax Relief

The Rs 12 lakh tax relief is designed to benefit individuals with “normal income”, which includes salaries, pensions, and other standard earnings. The rebate under Section 87A is applied to the tax calculated on this normal income, effectively reducing the tax liability to zero for incomes up to Rs. 12 lakh.

Exclusion of Capital Gains

Capital gains, both short-term and long-term, are considered “special rate income” and are taxed separately under the Income-tax Act. For instance:

• Short-Term Capital Gains (STCG) on equity shares held for less than a year are taxed at 15% under Section 111A.
  
  
• Long-Term Capital Gains (LTCG) on equity shares held for more than a year are taxed at 10% for gains exceeding Rs. 1 lakh under Section 112A.

These capital gains are also not eligible for the revised Section 87A rebate.

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Implications for Taxpayers with Mixed Incomes

If an individual’s income comprises both salary and capital gains, the tax relief applies only to the salary portion. For example, if someone earns Rs. 10 lakh from salary and Rs. 3 lakh from capital gains, the salary income may be eligible for the rebate, but the capital gains will be taxed separately at the applicable rates.

Business Income

Business incomes are also treated differently. While the new tax regime offers a rebate for normal incomes up to Rs. 12 lakh, business incomes are subject to their own set of rules and tax rates. Therefore, individuals with business income should consult the specific provisions applicable to their situation.

Conclusion

The Rs 12 lakh tax relief under the new regime is a significant benefit for salaried individuals. However, it is very much important to recognize the limitations concerning capital gains and business incomes as taxpayers. Taxpayers with diverse income sources should carefully assess their eligibility and consider seeking professional advice to optimize their tax liabilities and refunds.

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