Will My Income From Sale of Equity Shares Only Qualify for LTCG Tax and Be Eligible for Rebate U/S 87A?

As an SEO expert at Google, understanding the intricacies of Indian tax laws is essential, especially when it comes to long-term capital gains (LTCG) and the available tax reliefs. This article will explore whether your total income from the sale of equity shares and any LTCG qualify for LTCG tax, and whether you can benefit from tax relief under Section 87A.

Understanding the Taxation of LTCG on Equity Shares

The taxation of LTCG from the sale of equity shares in India is governed by specific sections of the Income Tax Act, particularly Section 112A. Here's a breakdown of the relevant points:

Exemption Limit: According to Section 112A, LTCG on the sale of equity shares and equity-oriented mutual funds are exempt up to Rs. 1 lakh in a financial year. Tax Rate: Gains above Rs. 1 lakh are taxed at 10, without the benefit of indexation.

Will Your Total Income from LTCG Be subject to Tax?

For a given total income from sale of equity shares, and assuming this income is entirely from LTCG, we can break down your tax liability as follows:

If your total income from LTCG is less than Rs. 7 lakhs, you are subject to the following:

Exemption: The first Rs. 1 lakh of LTCG is exempt from tax. Taxable Amount: Any amount above Rs. 1 lakh is taxed at 10.

Let's work through an example to illustrate this:

Total LTCG: Rs. 7 lakhs. Exempt LTCG: Rs. 1 lakh. Taxable LTCG: Rs. 6 lakhs.

Tax calculation for the taxable amount:

10% of Rs. 6 lakhs Rs. 60,000.

Eligibility for Section 87A Tax Rebate

In India, individuals with an income below Rs. 7 lakhs may be eligible for a rebate under Section 87A. This rebate is provided to reduce the overall tax liability.

Rebate Calculation: The rebate is the lower of the actual tax payable or Rs. 25,000.

In the context of our example:

Tax Payable: Rs. 60,000. Eligible Rebate: Rs. 25,000 maximum rebate.

Therefore, the net tax payable would be:

Rs. 60,000 - Rs. 25,000 Rs. 35,000.

This means that while you will be subject to LTCG tax if your total income from LTCG is less than Rs. 7 lakhs, the rebate under Section 87A can reduce your tax liability significantly.

For instance, if your total LTCG is Rs. 6 lakhs or below after the Rs. 1 lakh exemption, the rebate would cover the tax liability, leading to no net tax payable.

Conclusion

To summarize, if your total income from the sale of equity shares is solely from LTCG and it is less than Rs. 7 lakhs, you are subject to LTCG tax. However, you can benefit from the Section 87A rebate, making your final tax liability potentially zero or reduced substantially.

Professional Consultation

Always consider seeking professional tax advice to ensure compliance with all tax regulations and to make informed decisions about your financial affairs.