Explained: Income tax on positive factors from shares and rebate underneath Section 87A

For the monetary yr 20-21 my whole earnings, after varied deductions together with u/s 80C is ₹4,88,000/-. This contains capital positive factors on fairness mutual funds: brief time period capital positive factors of Rs. 17,000/- and long run capital positive factors of Rs. 55,000/- after preliminary exemption of Rs. 1 lakh. Since my earnings doesn’t exceed ₹5 lakh I’m entitled to rebate accessible underneath Section 87A and I shouldn’t have to pay any tax. Is my understanding appropriate?

Answer: An particular person taxpayer who’s resident of India for earnings tax functions is entitled to assert a rebate of as much as Rs. 12,500/- underneath Section 87A, in opposition to his tax legal responsibility supplied his whole taxable earnings after varied deductions exemptions doesn’t exceed 5 lakhs rupees for the yr. Many individuals are underneath the impression that in case the online taxable earnings doesn’t exceed 5 lakhs, one doesn’t must pay any tax regardless of composition of the overall earnings. 

This understanding just isn’t absolutely appropriate as a result of the rebate accessible underneath Section 87A will be claimed in opposition to tax legal responsibility of any nature apart from long run capital positive factors arising on fairness shares offered on inventory trade and fairness oriented mutual fund schemes. So although you’re eligible to assert rebate underneath Section 87A, as your whole earnings doesn’t exceed the brink of 5 lakh rupees, you continue to must pay tax on long run capital positive factors on fairness mutual funds. Please be aware the rebate underneath Section 87A is out there in opposition to tax legal responsibility in respect of brief time period capital positive factors on fairness merchandise. 

Though this an anomaly underneath the tax legal guidelines the place the rebate is out there in opposition to tax legal responsibility on brief time period capital positive factors however not in opposition to tax legal responsibility on long run capital positive factors of the identical nature. It needs to be the opposite means spherical. So to conclude you’ll have to pay tax at flat charge of 10.40% (Tax at 10% and cess at 4% on tax) on the web taxable long run capital positive factors of Rs. 55,000/- on fairness mutual fund schemes.

Balwant Jain is a tax and funding professional and will be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

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