Does 87A apply to capital gains?

For the FY 2025-26 onwards, 87A is NOT available against tax on Long-Term Capital Gains taxed under Section 112A (equity LTCG at 12.5%) — clarified by CBDT in 2025. It is still available against other ordinary income up to the threshold.

I switched from old to new regime mid-FY. Which 87A threshold applies?

You can't switch mid-FY for salaried — you opt at the start. For business/professional income, the regime choice is at ITR filing time and 87A then follows that regime's threshold (Rs. 5L old / Rs. 12L new). The choice is locked-in once made under Section 115BAC for business income (per sub-section 6), with limited re-entry options.

Income Tax · Glossary

Section 87A Rebate

Income tax rebate that effectively zeros out tax for low-to-mid income earners.

Section 87A of the Income Tax Act, 1961 provides a rebate that wipes out tax liability up to certain thresholds:

- Old regime: rebate of up to Rs. 12,500 if taxable income is up to Rs. 5 lakh (unchanged since Budget 2019).
- New regime: rebate of up to Rs. 60,000 if taxable income is up to Rs. 12 lakh (raised from Rs. 7 lakh in Budget 2025, continues in Budget 2026).

Marginal relief is built in so taxable income marginally above the new-regime threshold does not face the full tax jump. For a freelancer on 44ADA with Rs. 24 lakh gross receipts, taxable income is Rs. 12 lakh (50% deemed) — the new-regime 87A rebate brings the tax to zero.

Worked example

Taxable income Rs. 12,05,000 in the new regime: tax before 87A is Rs. 60,500. Marginal relief caps the post-rebate tax at the excess over Rs. 12 lakh (Rs. 5,000), so the rebate is Rs. 55,500 and the freelancer pays Rs. 5,000 + cess — not the full Rs. 60,500.

Practitioner tip

New-regime 87A is allowed by default. Under the old regime, 87A saves tax only if your income after all deductions (80C, 80D, HRA etc.) is Rs. 5 lakh or below — run the numbers with your CA before assuming you're above it.

Frequently asked

Does 87A apply to capital gains?: For the FY 2025-26 onwards, 87A is NOT available against tax on Long-Term Capital Gains taxed under Section 112A (equity LTCG at 12.5%) — clarified by CBDT in 2025. It is still available against other ordinary income up to the threshold.
I switched from old to new regime mid-FY. Which 87A threshold applies?: You can't switch mid-FY for salaried — you opt at the start. For business/professional income, the regime choice is at ITR filing time and 87A then follows that regime's threshold (Rs. 5L old / Rs. 12L new). The choice is locked-in once made under Section 115BAC for business income (per sub-section 6), with limited re-entry options.

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Section 44ADA — Presumptive taxation scheme for specified professionals — 50% of gross receipts is deemed profit.
FY vs AY (Financial Year vs Assessment Year) — FY is the year in which income is earned; AY is the next year, when tax is assessed.

Sources

Frequently asked

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