Budget 2025: You will have to pay taxes despite income below Rs 12 lakh if...

Budget 2025 proposes great relief to taxpayers earning up to Rs 12 lakh annually by offering rebates under Section 87A such that their tax liability becomes nil.

However, there are still cases where individuals whose income is Rs 12 lakh or less will still have to pay taxes in the proposed New Tax Regime 2025.

Finance Minister Nirmala Sitharaman pointed to this during her speech in the Parliament on Saturday (February 1). “To taxpayers up to Rs 12 lakh of normal income– other than special rate income such as capital gains– tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them,” she had said.

In other words, income taxed at special rates, such capital gains made through investments in stocks, including short-term capital gains (STCG) under Section 111A and long-term capital gains (LTCG) under Section 112, cannot be offset by the rebate.

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An illustration

Consider these two examples where the salary income is Rs 9 lakh and income from capital gains is Rs 3 lakh:

Scenario 1- Rs 9 lakh salary + Rs 3 lakh STCG via stock market

Under the proposed new tax regime 2025, income up to Rs 12 lakh is eligible for a rebate under Section 87A, resulting in zero tax liability for this portion.

STCG from equity investments are taxed at 20 per cent since Budget 2024.

Therefore, tax on STCG: Rs 3,00,000 × 20% = Rs 60,000
Total tax payable: Rs 60,000

Scenario 2- Rs 9 Lakh Salary + Rs 3 lakh LTCG via stock market

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As in Scenario 1, the salary income up to Rs 12 lakh is eligible for a rebate under Section 87A, resulting in zero tax liability for this portion.

LTCG from listed equities are taxed at 12.5 per cent. However, there is an exemption in this tax up to Rs 1,25,000. So, the taxable amount of LTCG would not be Rs 3,00,000, but Rs 1,75,000 instead.

Tax on LTCG: Rs 1,75,000 × 12.5% = Rs 21,875
Total tax payable: Rs 21,875

The calculations for other capital gains such as sale of property would result in different values, but it would still lead to a tax liability despite income of up to Rs 12 lakh.