Income Below ₹12 Lakh? You May Still Owe Tax — Here's How STCG Changes the Calculation
The new tax regime offers a rebate of up to ₹60,000 for taxable income up to ₹12 lakh — but short-term capital gains tax in India works by a different set of rules entirely. Short-term capital gains (STCG) are treated as special-rate income, kept separate from your regular slab income, and taxed at a flat 20% regardless of your total income level.
According to CA and CFP Balwant Jain, STCG and other special-rate income are excluded from the rebate calculation under Section 87A. That means even when your total income is well below ₹12 lakh, a capital gain from selling listed shares can still result in a tax bill you weren't expecting.
Indian taxpayers can choose between the old and new tax regimes. The new regime offers fewer deductions — mainly a ₹75,000 standard deduction and the employer's 14% NPS contribution — but its rebate limit is far more generous.
Under the new regime, Section 87A provides a rebate of up to ₹60,000 for taxpayers with taxable income up to ₹12 lakh. In the old regime, the same rebate is capped at ₹12,500 and applies only up to ₹5 lakh in taxable income.
The critical word here is "taxable income" — but not all taxable income qualifies for the rebate. Special-rate income such as STCG and LTCG is excluded from this calculation.
Even under the new regime, you can claim a ₹75,000 standard deduction against salary or pension income, plus the employer's 14% NPS contribution if applicable. These reduce your regular taxable income — but they do nothing to offset any STCG liability, which sits in its own separate column.
Consider a senior citizen with total income of ₹11.75 lakh, made up of pension and interest income. After claiming the ₹75,000 standard deduction against a pension of ₹8 lakh, the taxable pension comes to ₹7.25 lakh. Adding ₹3.75 lakh in interest income brings the total to ₹11 lakh. That figure sits below the ₹12 lakh rebate ceiling, so the full Section 87A rebate applies — and no tax is owed on this portion.
Now add ₹55,000 in STCG from selling listed equity shares. This amount is not included in the rebate calculation. The STCG tax rate on listed shares is 20%, which means a tax liability of ₹11,000 on that ₹55,000 gain alone — even though the regular income was fully covered by the rebate.
The example makes one thing clear: in the new tax regime, the rebate applies only to income taxed under the regular slabs. Short-term and long-term capital gains sit outside that protection entirely.
Short-term capital gains tax in India can catch even careful planners off guard. If you earn income from equity shares or mutual funds during the year, check whether any of it qualifies as STCG — because no matter how low your regular income is, that STCG will be taxed separately at 20%. The rebate under Section 87A is a meaningful benefit, but it does not extend to special-rate income.
No — and this is where most people get caught off guard. Short-term capital gains on listed shares are taxed at a special flat rate of 20%, which sits outside the regular slab calculation. So even if your total income including STCG is under ₹12 lakh, the STCG portion is not covered by the Section 87A rebate. The rebate applies only to the slab-rate income portion.
For listed equity shares and equity mutual funds, STCG — gains from holdings sold within 12 months — is taxed at 20% under the rate revised from July 2024. So if you made ₹55,000 in short-term gains, your tax bill on that amount alone is ₹11,000, regardless of your other income level.
Not automatically. A senior citizen's pension income may fall entirely within the rebate limit, but any STCG earned during the year — even a small amount from selling shares — is calculated separately and taxed at the flat STCG rate. As CA Balwant Jain points out, there is no age-based exemption for capital gains under the new tax regime.
Yes. Long-term capital gains on listed equities above ₹1.25 lakh per year are also taxed at a special rate — currently 12.5% — and are similarly excluded from the 87A rebate calculation. The rebate only protects income that falls under the regular income tax slabs, not special-rate income of any kind.
Check whether any of your income came from sources taxed at special rates — equity share gains, mutual fund redemptions, or lottery winnings. If yes, calculate that income separately at the applicable rate. Your slab income may attract zero tax thanks to the rebate, but the special-rate income will still generate a liability. A quick check: look at your broker's tax P&L statement before filing.
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