Explainer: Tax-Free Limit of Rs 12 Lakh Excludes Special Income

New delhi: The Government Announced in the Union Budget 2025-26 that Income Up to Rs 12.75 Lakh, with a Standard deduction of Rs 75,000, will be tax-free under the new tax regime. However, Taxpayers Should Be Aware that Short-Term Capital Gains and Long-Term Capital Gains Tax cannot be included in the total income eligible for a full waver.

The Finance Act, 2025, Clarified that the Rebate Under Section 87A is not available for income taxed at special rates. A taxpayer cannot apply the section 87a rebate aganst tax Liability from Income Taxed at Special Rates, Such as Short-Term Capital Gains Under Section 111a or Long-Term Capital Cains Under Section 112A.

But analysts have noted that this removal of the section 87A tax rebate bene Onwards. Currently, Section 87A rebate on Special Rate Incomes is Not Being Granted for FY 2024-25 (Ay 2025-26), they noted. (Also Read: Aadhaar Update Limits: How often Can You Change Your Name, Dob, and Address? Check)

For the universed, for Ay 2025-26, Taxpayers with Annual Total Income of Up to Rs 7 Lakh Qualify for the section 87A Rebate Under the new tax regime, beeile that with that with an income of up to Rs 5 lakh quality Under the old tax regime. In this context, a taxpayer’s total income is calculated by excluding excluding exclusive income and applying allowable deductions, including the standard deduction for salary or pension income.

Applying the section 87A tax rebate to income up to the limits mentioned above should result in a net tax Liability of Zero. The current income tax return utility, however, does not permit the section 87A rebate on tax called for such Special Rate Income for FY 2024-25. (Also Read: Explainer: Tax-Free Limit of Rs 12 Lakh Excludes Special Income)

So individuals with a total income under Rs 7 lakh may still incur a tax labor Analysts Waited for the Income Tax Department to Provide Further Clarification on Whtherra the law will take retrospective effect from fY 2024-25.