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The net taxable income of my wife (aged 58), after deduction of Chapter VI-A, is exactly ₹5 lakh; plus long-term capital gain on sale of mutual funds is around ₹95,000. Since long-term capital gain is taxed separately (as I have learnt), please let me know whether my wife is eligible to get tax rebate of ₹12,500 on her taxable income on ₹5 lakh; thereby her final tax liability is only on LTCG, subject to available exemptions for LTCG.
K.S.V.Pathy
Under the old tax regime, a rebate of ₹12,500 is available to an individual taxpayer, under section 87A of the Income-tax Act,1961 (“the Act”). The said section provides that an individual resident in India, whose total taxable income does not exceed ₹5 lakh, shall be entitled to a deduction of ₹12,500 from his tax liability on his total income.
Total income is defined under Section 2 (45) of the Act as total amount of income referred to in section 5 of the Act, computed in the manner laid down in this Act which for a person who is a resident includes all income from whatever source.
Hence, total income includes income under all the sources and shall be considered post claim of deductions and exemptions wherever applicable. We assume your wife is a resident in India for tax purposes and the income from capital gain (long-term) is not eligible for any benefits under section 112A of the Act. Then if she chooses to be taxed under old scheme, she will not be eligible for the said rebate of ₹12,500 since her total income as defined in above provisions is above the threshold of ₹5 lakh.
It is pertinent to note that, in case your wife takes the option under section 115BAC i.e., the new tax regime for financial year 2023-24, she will be eligible for the rebate under section 87A up to a total income threshold of ₹7 lakh and marginal relief in case income exceeds ₹7 lakh.
Please note under the new tax regime, the limit of ₹7 lakh shall be calculated without allowing deductions under Chapter VIA and certain other prescribed sections; also certain exemptions under chapter 10 of the Act will not be allowed.
The author is a practising chartered accountant
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