Exclude capital gains when calculating Section 87 A tax rebate in FY 2025-26, says CBDT

Capital gains under sections 111A and 112 shall be excluded from calculating the section 87A rebate under the new tax regime in FY 2025-26, according to the Central Board of Direct Taxes (CBDT).

"It is provided that where resident individuals opt for the new tax regime of Section 115BAC, the incomes chargeable to tax at special rates (for example, capital gains taxable under Section 111A, Section 112, etc.) shall be excluded from calculating the Section 87A rebate," the CBDT said.

Why is this important?

From the Financial Year 2025-26, the CBDT has increased the Section 87A rebate under the new regime to ₹60,000. The income threshold for claiming such a rebate has also been increased from ₹7 lakh to ₹12 lakh.

"The income threshold for claiming a tax rebate under Section 87A for resident individuals taxable under the new regime of Section 115BAC has been increased from ₹7 lakhs to ₹12 lakhs, and the maximum rebate amount has been raised from ₹25,000 to ₹60,000," the CBDT said.

The enhanced rebate threshold makes taxable income up to ₹12 lakh tax-free, provided it doesn't include income from special rate assets. So if a person has income both from special rate assets and normal sources, such as salary or pension, then the tax liability of both types of income will need to be determined separately.