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Budget 2025 Loophole: Why You Might Still Pay Tax Despite Earning Below Rs 12 Lakh

Budget 2025 provides tax relief for incomes up to ₹12 lakh under Section 87A. However, capital gains from stocks and property remain taxable, leaving some taxpayers with a tax liability.

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Budget 2025 Loophole: Why You Might Still Pay Tax Despite Earning Below Rs 12 Lakh

In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced significant tax relief for individuals earning up to Rs 12 lakh annually. Under the proposed New Tax Regime, taxpayers within this income bracket can benefit from rebates under Section 87A, effectively reducing their tax liability to zero. However, exceptions apply, particularly concerning income from special rate categories like capital gains.

Who Still Pays Taxes Despite the Rebate?

While the rebate covers normal income, it does not extend to special rate income, including short-term capital gains (STCG) under Section 111A and long-term capital gains (LTCG) under Section 112. This means individuals earning Rs 12 lakh or less could still face tax obligations if part of their income comes from these sources.

Illustration of Tax Liability Scenarios:

  1. Scenario 1: Rs 9 Lakh Salary + Rs 3 Lakh STCG
    • Salary income of Rs 9 lakh qualifies for a full rebate under Section 87A, resulting in zero tax liability.
    • STCG from equity investments is taxed at 20% (as per Budget 2024). • Tax calculation: Rs 3,00,000 × 20% = Rs 60,000.
    Total Tax Payable: Rs 60,000.
  2. Scenario 2: Rs 9 Lakh Salary + Rs 3 Lakh LTCG
    • Salary income up to Rs 12 lakh receives the full rebate, with zero tax liability. • LTCG from listed equities is taxed at 12.5%, with an exemption for the first Rs 1,25,000. • Taxable LTCG: Rs 1,75,000.
    • Tax calculation: Rs 1,75,000 × 12.5% = Rs 21,875.
    Total Tax Payable: Rs 21,875.

While the Budget 2025 offers considerable relief for salaried individuals, those earning from capital gains will still face tax liabilities, underscoring the importance of understanding the nuances of the new tax regime.