Mint Explainer: Can capital gains make you ineligible for a tax rebate?

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Subscribe to enjoy similar stories. In Union Budget 2025-26, finance minister Nirmala Sitharaman raised the tax-rebate threshold under Section 87A of the Income Tax Act from ₹7 lakh to ₹12 lakh.

With the standard deduction of ₹75,000, the threshold is ₹12.75 lakh for salaried individuals. Though the announcement was widely welcomed, it failed to address a critical question – does income from capital gains affect a person’s eligibility for the rebate? In other words, if a person with a ₹12 lakh salary earns an additional ₹1 lakh from capital gains, will they lose the rebate or will they only have to pay tax on the capital gains? This confusion isn’t new.

Even with the current ₹7 lakh rebate threshold, tax experts are confused about whether capital gains are clubbed under total income when determining whether a person is eligible for a rebate. Mint reached out to the Central Board of Direct Taxes (CBDT), but experts said some ambiguity still remains.

V Rajitha, official spokesperson for CBDT, said the tax treatment depends on the wording of the finance bill – specifically whether capital gains are considered part of a person’s normal income or not when determining their eligibility for a rebate. “Since capital gains are classified as special-rate income, they do not qualify for the rebate.

However, their impact on overall tax liability depends on the way the rebate is structured — whether it is based solely on normal income or the total taxable income," she said. Also read | Income tax bill: Why was there a need for a new legislation? “If the rebate applies only to normal income, an individual with a ₹12 lakh salary and any additional capital gains should still be eligible for the rebate on salary income," Rajitha said.