Income Tax Calculator: Tax Payers' Doubts Clarified After Finance Bill 2025

Finance Minister Nirmala Sitharaman announced in her Budget 2025 Speech that there will be no income tax payable on annual income up to Rs.12 lakh "other than special rate income such as capital gains." There was confusion among the taxpayers as to how capital gains would affect their taxability. If 1 lakh in an individual's Rs.13 lakh annual salary is capital gains, will it make him/her eligible for the Rs.12 lakh tax rebate? Clearing the confusion, the CBDT released key highlights of the Finance Bill, where the capital gains will be excluded from calculating the section 87A rebate.

For example, if you earn Rs.13 lakh per year, including Rs.1 lakh from capital gains, this 1 lakh will be excluded from the 13 lakh and you will be eligible for income tax rebate under 87A as it comes within the Rs.12 lakh limit.

It is important to note that the tax rebate on Rs.12 lakh annual income only comes under the new regime. This Rs.12 lakh limit increases to Rs.12.75 lakh after adjusting a standard deduction of Rs.75,000.

What are Capital Gains?

Capital Gains arise when you sell an investment and make a profit out of it. Capital Gains are of two types - Short-term Capital Gains and Long-term Capital Gains and they attract different tax rates. For unlisted shares, the holding period is 24 months to qualify as long-term assets. For listed shares, it is 12 months.

Short-term capital gains apply when equity shares or equity mutual fund units are sold within 12 months of purchase. The Budget had increased the tax rate on short-term capital gains to 20 percent. It was 15% before the Budget.

Long-term capital gains, on the other hand, will have tax if equity assets are held for more than 12 months. The long-term capital gains tax rate is 12.5 percent, increased from 10 percent before.

Income Tax Slabs for FY26:

These are the income tax slabs under the new regime: