Income Tax Rebate Not For Everyone Earning Below Rs 12 Lakh; Know Why, Who Is Eligible

Income Tax Rebate Eligibility: Finance Minister Nirmala Sitharaman announced a big bonanza for taxpayers in the Union Budget 2025-26 on Saturday, February 1. Presenting the second full budget of Modi 3.0, Sitharaman declared that salaried individuals earning up to Rs 12 lakh will now be eligible for a full income tax rebate under the new regime. As joy gripped the middle class, there also arose questions over who will be able to avail the complete tax rebate under Section 87A.

Let us be clear that the tax rebate is only meant for salaried individuals earning up to Rs 12 lakh, that is, average income of Rs 1 lakh per month. "This limit will be Rs 12.75 lakh for salaried tax payers, due to standard deduction of Rs. 75,000," said Sitharaman. The finance minister also announced changes in the income tax slabs under the new regime.

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No Tax Rebate On Capital Gains

The income tax rebate does not apply to people whose earnings include special rate income such as capital gains. The capital gains (short-term and long-term) are taxed at special rates and won't be covered under rebate. Hence, not everyone earning under Rs 12 lakh will be eligible for tax rebate under Section 87A.

Key Takeaways From Union Budget 2025

1. Salaries up to Rs 12 lakh will be tax-free under Section 87A.

2. Earnings from investments and incomes taxed at special rates will be excluded.

3. Short-term capital gains, taxed at 20 per cent, will not be included.

4. Long-term capital gains on equities will also not be eligible for rebate as they are taxed at 12.5 per cent.

5. Taxpayers earning capital gains do not qualify for full exemption and should plan accordingly.

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