I’m a retired senior citizen. My income comprises ₹2 lakh from bank interest, ₹1.5 lakh of short-term capital gains and ₹2.2 lakh of long-term capital gains. What are my tax implications under the new regime and which income tax form should I use?
– Name withheld on request
I am assuming the long-term and short-capital gains of Rs. 2.2 lakh and ₹1.5 lakh come from the sale of listed equity shares, or units of equity-oriented funds, real estate investment trusts (REITs) or infrastructure investment trusts (InvITs), which are subject to securities transaction tax (STT) and hence taxable under section 112A and 111A, respectively.
In the case of LTCG, gains up to Rs. 1.25 lakh during the year are exempt from tax. Therefore, your taxable income would be Rs. 4.45 lakh (including taxable long-term capital gains of ₹95,000).
Under the new tax regime, a rebate up to ₹25,000 under Section 87A is available if total income is below ₹7 lakh. For the purpose of determining whether such rebate is available, capital gains are to be considered. That is, if total income (including capital gains) does not exceed ₹7 lakh, no tax is payable on account of the rebate under Section 87A.
Yes, but…
However, Section 112A specifically says the rebate under Section 87A cannot be set off against the tax on long-term capital gains. There is no similar provision with respect to short-term capital gains, and therefore, as per the law, a rebate should be available against tax on short term capital gains. The tax authorities have, however, been taking the stand that a rebate under Section s 87A is not available even against tax on short-term capital gains. Claiming such a rebate is therefore likely to result in litigation.
If you choose to claim the rebate against short-term capital gains, while rebate cannot be set off against long-term capital gains, you can set off the long-term capital gains against the exemption slab (i.e. Rs. 3 lakh) to the extent of your unused basic exemption from other income – bank interest in your case. Accordingly, your entire long-term capital gains under Section 112A can be set off against the exemption slab of ₹3 lakh and the tax on the balance short-term capital gains can be set-off against the rebate, resulting in no tax payable.
However, the tax return utility does not allow the rebate to be set off against the tax on long-term and short-term capital gains and still computes the tax payable on the gains even if you input the rebate amount manually.
If you choose not to avail of the rebate on the capital gains, your tax will be computed on capital gains exceeding ₹3 lakh (slab exemption). In other words, you may need to pay tax on ₹95,000 of long-term capital gains and on ₹60,000 of short-term capital gains (after adjustment against the slab).
The rate of tax on such gains will depend on whether the assets were sold before or after 23 July 2024. Long-term capital gains are taxable at 10% on transfers up to 22 July 2024 and at 12.5% on transfers on or after 23 July 2024. Similarly, short-term capital gains are taxable at 15% on transfers up to 22 July 2024 and 20% on transfers after that.
You will need to file ITR-2 on or before 15 September 2025.
Mahesh Nayak is a chartered accountant at CNK & Associates.