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September 16, 2026
Section 87A Capital Gains in 2026: The Rs. 12 Lakh Trap Explained
Introduction
“No tax up to Rs. 12 lakh” is useful shorthand for the new tax regime, but it is not a blanket exemption. For AY 2026-27, an eligible resident individual can claim a rebate of up to Rs. 60,000 where total income does not exceed Rs. 12 lakh. However, Section 87A Capital Gains need separate treatment because the rebate cannot be used against tax charged at specified special rates.
A taxpayer with total income below Rs. 12 lakh may therefore still have tax payable where income includes specified equity STCG, LTCG or other special-rate income. Understanding Section 87A Capital Gains before selling shares, gold or property can help avoid an unexpected tax liability.
Quick Insights
- The Section 87A rebate 2026 can be up to Rs. 60,000 for an eligible resident individual under the new regime.
- Section 87A Capital Gains depend on whether the gain is taxed at normal slab rates or a special rate.
- Section 87A Rebate on Capital Gains cannot eliminate tax charged at specified special rates.
- Section 112A equity LTCG has a separate Rs. 1.25 lakh aggregate annual threshold.
- Marginal relief above Rs. 12 lakh does not make special-rate tax eligible for the rebate.
Section 87A in AY 2026-27 and Section 156 from 1 April 2026
An important transition applies in 2026.
AY 2026-27 relates to income earned from 1 April 2025 to 31 March 2026 and continues to be governed by the Income-tax Act, 1961. Therefore, the rebate applicable to this assessment year continues to be referred to as Section 87A.
From 1 April 2026, however, the Income-tax Act, 2025 applies for Tax Year 2026-27 onward. Under the new Act, Section 156 of the Income Tax Act, 2025 is the corresponding rebate provision that replaces Section 87A for income governed by the new law.
Section 156 continues the rebate framework for eligible resident individuals and also provides for the relevant new-regime rebate and marginal relief subject to prescribed conditions.
This transition is particularly important for Section 87A Capital Gains because the applicable section number depends on the income period. For AY 2026-27, Section 87A remains relevant; for Tax Year 2026-27 onward, taxpayers must refer to Section 156 of the Income-tax Act, 2025.
What Is the Section 87A Rebate in 2026?
For AY 2026-27, an eligible resident individual under the new regime can claim a rebate equal to 100% of eligible income tax or Rs. 60,000, whichever is lower, where total income does not exceed Rs. 12 lakh.
This is where Section 87A Capital Gains require careful computation. Rs. 12 lakh is not a universal exemption limit applicable to every type of income.
Tax charged at specified special rates must be separated from tax calculated at normal new-regime slab rates before determining the available rebate.
Does Section 87A Rebate Apply to Capital Gains?
The answer depends on how the capital gain is taxed.
Certain short-term capital gains are taxable at the normal slab rates applicable to the individual. Where tax on such gains forms part of normal-rate tax, it may fall within the rebate framework if all prescribed conditions are satisfied.
However, Section 87A Rebate on Capital Gains cannot be used against tax payable on specified special-rate gains. This includes eligible equity STCG under Section 111A and specified LTCG taxable under Sections 112 or 112A.
Therefore, Section 87A Capital Gains should always be separated into:
- gains taxable at normal slab rates; and
- Section 87A special rate income taxable at specific rates.
For equity investments, taxpayers can read Ebizfiling’s detailed guide on Section 111A and Section 112A capital gains provisions to understand the applicable STCG and LTCG framework.
Why Income Below Rs. 12 Lakh Can Still Be Taxable
The phrase 12 lakh no tax capital gains can create the wrong impression.
Suppose an individual has Rs. 7 lakh of normal taxable income and Rs. 3 lakh of long-term capital gain from physical gold.
Total income is only Rs. 10 lakh.
However, tax attributable to the special-rate LTCG is not automatically eliminated merely because total income remains below Rs. 12 lakh.
This is the practical capital gains tax below 12 lakh issue. Section 87A Capital Gains depend not only on total income but also on the tax rate applicable to each component of income.
Section 87A Capital Gains: Three Practical Examples
Case 1: Rs. 10 Lakh Normal Taxable Income
Assume an eligible resident individual has Rs. 10 lakh of normal taxable income under the new regime and no special-rate income.
Under the AY 2026-27 slabs:
- Rs. 4 lakh to Rs. 8 lakh at 5% = Rs. 20,000
- Rs. 8 lakh to Rs. 10 lakh at 10% = Rs. 20,000
Total tax before rebate is Rs. 40,000.
Since this is normal slab-rate tax and total income is within Rs. 12 lakh, the Section 87A rebate 2026 can reduce the Rs. 40,000 tax to nil, subject to the prescribed conditions.
Case 2: Rs. 7 Lakh Normal Income + Rs. 3 Lakh Gold LTCG
Assume:
- Normal taxable income: Rs. 7 lakh
- Gold LTCG: Rs. 3 lakh
- Total income: Rs. 10 lakh
Physical gold generally becomes a long-term capital asset when held for more than 24 months. LTCG on relevant transfers is generally taxable at 12.5%, subject to applicable exemptions and specific provisions.
Tax on Rs. 7 lakh of normal income is Rs. 15,000 and may be covered by the rebate.
Tax on Rs. 3 lakh of gold LTCG at 12.5% is Rs. 37,500.
The 87A rebate on LTCG cannot eliminate this special-rate tax. After adding 4% Health and Education Cess, the amount becomes Rs. 39,000, assuming no capital-loss set-off, exemption or other adjustment applies.
This Section 87A LTCG 2026 example shows why Section 87A Capital Gains may create a tax liability even when total income is below Rs. 12 lakh.
Where the transaction involves a residential house, taxpayers should separately examine whether they qualify for a Section 54 capital gains exemption.
Case 3: Can Gold STCG Result in Less Tax Than LTCG?
Assume an individual has Rs. 7 lakh of other normal income and a Rs. 3 lakh gain from physical gold.
If the gold is short-term, the gain is generally taxable at normal slab rates. Total normal taxable income becomes Rs. 10 lakh, resulting in Rs. 40,000 of slab-rate tax.
If the prescribed conditions are satisfied, the Section 87A rebate can cover this tax.
If the same Rs. 3 lakh gain becomes long-term, it generally moves to the applicable special LTCG rate. The Section 87A LTCG 2026 restriction may therefore leave tax payable.
In this specific situation, STCG can result in a lower final tax than LTCG.
Therefore, Section 87A Capital Gains planning should compare the complete tax computation instead of assuming that waiting for long-term treatment will always produce a better result.
How Does Marginal Relief Work Above Rs. 12 Lakh?
Marginal relief may be available where qualifying total income under the new regime slightly exceeds Rs. 12 lakh.
Its purpose is to prevent the additional tax payable from becoming disproportionately higher than the amount by which income exceeds the Rs. 12 lakh threshold.
However, marginal relief does not make Section 87A special rate income eligible for rebate.
Therefore, Section 87A Capital Gains taxable at specified special rates must still be considered separately while calculating the final tax liability.
Section 87A vs Rs. 1.25 Lakh Equity LTCG Threshold
The Rs. 1.25 lakh aggregate annual threshold for specified equity LTCG and the Section 87A rebate are separate provisions.
For qualifying listed equity shares, units of equity-oriented mutual funds and units of business trusts, aggregate LTCG exceeding Rs. 1.25 lakh is generally taxable at 12.5%, subject to prescribed conditions.
The 87A rebate on LTCG should not be confused with this threshold.
First, taxable Section 112A LTCG should be determined after applying the Rs. 1.25 lakh aggregate threshold. The applicable special-rate tax must then be calculated separately while considering the Section 87A restriction.
This distinction is essential for accurate Section 87A Capital Gains computation.
Tax Planning Before Realising Capital Gains
Before selling shares, gold or property, taxpayers should perform a complete Section 87A Capital Gains calculation instead of comparing only headline STCG and LTCG rates.
Check:
- residential status;
- old versus new tax regime;
- asset type and holding period;
- normal-rate income;
- Section 87A special rate income;
- available capital losses;
- applicable capital-gain exemptions;
- marginal relief; and
- Health and Education Cess.
Where an asset is close to becoming long-term, calculate the tax outcome both before and after the holding-period threshold.
The Section 87A Rebate on Capital Gains should be considered only after normal-rate and special-rate tax have been identified separately.
Mistakes to Avoid under Section 87A Capital Gains
Common mistakes include:
- Assuming income below Rs. 12 lakh always means zero tax.
- Applying Section 87A Rebate on Capital Gains against special-rate capital-gains tax.
- Ignoring equity STCG taxable under Section 111A.
- Assuming the 87A rebate on LTCG applies to every long-term capital gain.
- Mixing the Rs. 1.25 lakh Section 112A threshold with Section 87A.
- Assuming LTCG always results in lower tax than STCG.
- Ignoring marginal relief where income is slightly above Rs. 12 lakh.
Avoiding these mistakes is important when calculating capital gains tax below 12 lakh.
Don’t Let Capital Gains Turn Into an Unexpected Tax Bill
Section 87A Capital Gains can become difficult to calculate when your income includes salary, interest, equity gains, gold gains, property gains, or multiple investments in the same year. A small mistake in identifying the applicable tax rate, rebate eligibility, or capital-loss set-off can change your final tax liability.
Ebizfiling can help you understand the correct capital-gain treatment, review your tax regime, adjust eligible capital losses, and complete accurate Income Tax Return filing.
Planning to sell shares, gold, property, or another valuable asset? Get clarity on the applicable capital-gain rate, Section 87A rebate, and available exemptions before completing the transaction.
Make an informed tax decision and connect with Ebizfiling experts for Tax Consultancy Services today.
Conclusion
The Rs. 12 lakh threshold under the new tax regime does not guarantee zero tax on every category of income. Section 87A Capital Gains must be calculated by separating income taxed at normal slab rates from income taxed at specified special rates.
For AY 2026-27, the rebate continues to operate under Section 87A of the Income-tax Act, 1961. From 1 April 2026, Section 156 of the Income Tax Act, 2025 becomes the corresponding rebate provision for Tax Year 2026-27 onward.
Therefore, taxpayers must identify the correct law, income period, tax rate and rebate provision before calculating their liability. A careful Section 87A Capital Gains computation can help avoid the Rs. 12 lakh trap.
Frequently Asked Questions
1. Can the unused basic exemption limit be adjusted against Section 112A LTCG?
Yes. In the case of a resident individual or resident HUF, if income excluding Section 112A LTCG is below the applicable maximum amount not chargeable to tax, the shortfall can generally be adjusted against the Section 112A long-term capital gain before tax is calculated on the balance. This adjustment is separate from the Section 87A Rebate on Capital Gains.
2. Is the Rs. 1.25 lakh Section 112A LTCG threshold available separately for each investment?
No. The Rs. 1.25 lakh limit is an aggregate annual threshold for qualifying long-term capital gains covered by Section 112A. It is not separately available for each share, mutual fund, demat account, broker or transaction. For qualifying transfers on or after 23 July 2024, Section 112A LTCG exceeding the aggregate Rs. 1.25 lakh threshold is generally taxable at 12.5%, subject to prescribed conditions.
3. Can a short-term capital loss be set off against long-term capital gains taxed at a special rate?
Yes. A short-term capital loss can generally be set off against eligible short-term as well as long-term capital gains. However, a long-term capital loss can be set off only against long-term capital gains. Accordingly, eligible capital-loss adjustment should be completed before determining the final capital-gains tax liability.
4. Can an HUF claim the Section 87A rebate if its income is below Rs. 12 lakh?
No. Section 87A is specifically available to an individual resident in India who satisfies the applicable conditions. An HUF does not become eligible for the rebate merely because its total income is below Rs. 12 lakh. This differs from certain capital-gains provisions, where benefits such as adjustment of the unused basic exemption limit may be available to both resident individuals and resident HUFs.
5. Is Health and Education Cess calculated before or after the Section 87A rebate?
Health and Education Cess is calculated after determining the tax payable after the applicable rebate and surcharge. Therefore, where tax on special-rate capital gains remains payable despite Section 87A, the applicable 4% cess is also calculated on the remaining tax liability together with surcharge, wherever applicable.
6. Can Chapter VI-A deductions be claimed directly against Section 112A LTCG?
Generally, no. Where gross total income includes LTCG covered by Section 112A, Chapter VI-A deductions are allowed from gross total income after reducing it by the Section 112A capital gain. Therefore, eligible Chapter VI-A deductions cannot ordinarily be used directly to reduce the Section 112A LTCG itself. The availability of any deduction must also be checked under the taxpayer’s chosen tax regime.
7. Can a capital loss be carried forward if the income-tax return is filed late?
Generally, no. If a taxpayer wants to carry forward a capital loss under Section 74, the loss must ordinarily be determined through a return filed in accordance with Section 139(3), which refers to filing within the applicable due date under Section 139(1). A belated return can therefore result in loss of the capital-loss carry-forward benefit.
8. Will capital losses generated under the Income-tax Act, 1961 remain available after the Income Tax Act, 2025 becomes applicable?
Yes, where the losses were validly determined and eligible for carry-forward under the 1961 Act. The Income Tax Department’s transition guidance confirms that such losses retain their original character under the Income Tax Act, 2025 and can continue to be carried forward and set off subject to the applicable conditions. The repeal and saving provisions do not revive losses that were already ineligible under the old law.
9. Can Ebizfiling help compare the tax impact before selling shares, gold or property?
Yes. Ebizfiling can help taxpayers review the asset type, holding period, normal-rate income, special-rate capital gains, available losses, applicable exemptions and rebate position before a significant transaction. A pre-sale review can be particularly useful where the timing of a transaction may change its STCG or LTCG treatment.
10. Can Ebizfiling assist with ITR filing where multiple types of capital gains are involved?
Yes. Where a taxpayer has a combination of salary or interest income together with normal-rate capital gains, Section 111A STCG, Section 112 or Section 112A LTCG, the different income components must be classified and reported correctly. Ebizfiling can assist with capital-gain computation, eligible loss set-off, rebate review and accurate Income Tax Return filing.
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