Your Income Below Rs 12 Lakh Will Be Taxed If It Includes Capital Gains

Last Updated:February 05, 2025, 16:27 IST

Income Tax: Budget 2025 Clarifies Rs 12 Lakh Tax Exemption Details

Income Tax Relief in Budget 2025: The recently unveiled Union Budget 2025-26 has been hailed as a “dream budget” due to its substantial income tax benefits. Among these, the exemption of annual income up to Rs 12 lakh from taxes is a significant highlight. However, it’s crucial to understand the nuances involved, particularly regarding special categories of income like capital gains.

Finance Minister Sitharaman’s Clarifications

Finance Minister Nirmala Sitharaman clarified that the Rs 12 lakh income tax exemption does not cover “special rate income,” such as capital gains. This means while salary income up to Rs 12 lakh is tax-free, other types of income, including capital gains, are still taxable. For salaried individuals, the exemption limit is Rs 12.75 lakh, considering the standard deduction of Rs 75,000.

Revised Income Tax Slabs

The budget has adjusted the income tax slabs under the new regime as follows:

Income up to ₹4,00,000 is exempt from tax.

Income between ₹4,00,001 and ₹8,00,000 is taxed at 5%.

Income between ₹8,00,001 and ₹12,00,000 is taxed at 10%.

Income between ₹12,00,001 and ₹16,00,000 is taxed at 15%.

Income between ₹16,00,001 and ₹20,00,000 is taxed at 20%.

Income between ₹20,00,001 and ₹24,00,000 is taxed at 25%.

Income above ₹24,00,000 is taxed at 30%.

Special Income Categories and Taxation

For instance, if an individual earns Rs 12 lakh annually, of which Rs 10 lakh is from salary and Rs 2 lakh from capital gains, only the Rs 10 lakh salary income is tax-free. The Rs 2 lakh capital gains are subject to the applicable tax rates.

Understanding Capital Gains Tax Rates

Capital gains tax rates and holding periods vary based on the type of asset and the duration held.

Equity Shares and Mutual Funds:

• Short-Term Capital Gains (STCG): Assets held for less than 12 months are taxed at 20%.
• Long-Term Capital Gains (LTCG): Assets held for 12 months or more are taxed at 12.5% without indexation benefits. The first Rs 1.25 lakh is exempt.

Debt-Oriented Mutual Funds:

• Short-Term Capital Gains: For holdings of less than 24 months, gains are taxed at the individual’s applicable income tax slab rates.
• Long-Term Capital Gains: For holdings of 24 months or more, if acquired before April 1, 2023, gains are taxed at 12.5% without indexation. For acquisitions on or after April 1, 2023, gains are taxed at applicable slab rates without indexation benefits.

Immovable Property (Real Estate):

• Short-Term Capital Gains: Properties held for less than 24 months are taxed according to the individual’s income tax slab rates.
• Long-Term Capital Gains: Properties held for 24 months or more:
  • Acquired before July 23, 2024: Taxed at 20% with indexation or 12.5% without indexation.
  • Acquired on or after July 23, 2024: Taxed at 12.5% without indexation.

Unlisted Shares:

• Short-Term Capital Gains: For holdings of less than 24 months, gains are taxed at the individual’s applicable income tax slab rates.
• Long-Term Capital Gains: For holdings of 24 months or more, gains are taxed at 12.5% without indexation benefits.

These rates are subject to applicable surcharges and cess.

Filing Income Tax Return Despite Nil Tax Liability

Individuals with income up to Rs 12 lakh and no tax liability are still required to file an Income Tax Return (ITR). According to the Income Tax Department, anyone with gross total income exceeding Rs 4 lakh must file an ITR. This is a legal obligation regardless of whether the final tax liability is zero.

Take Control of Your Finances

Navigating the complexities of tax regulations can be challenging. It’s essential to stay informed about the latest changes and consult with a financial advisor to ensure compliance and optimize your tax planning. The revised income tax slabs and special income categories introduced in Budget 2025-26 provide a clear framework but also require careful consideration.

Do you have questions about how these changes might affect you? We encourage you to share your thoughts and experiences in the comments section below. Whether you’re a salaried individual or an investor, understanding these nuances can help you make informed financial decisions.