Comprehensive Guide to Section 87A Rebate and STCG u/s 111A under the New Tax Regime for FY 2025-26
The landscape of personal taxation in India continues to evolve, particularly with the adjustments introduced via the Finance Act, 2025. For the Financial Year 2025-26 (Assessment Year 2026-27), the interplay between the tax rebate under Section 87A and special rate incomes—specifically Short-Term Capital Gains (STCG) under Section 111A—has undergone significant clarification.
For an assessee navigating the New Tax Regime, understanding how the Basic Exemption Limit (BEL) interacts with capital gains, and identifying exactly which portion of income qualifies for a rebate, is critical for accurate tax planning. This article provides an in-depth analysis of these provisions, supported by practical illustrations.
1. The Framework: Rebate under Section 87A for FY 25-26
Under the New Tax Regime, the government has incentivized compliance by enhancing the rebate limits. However, this benefit comes with specific conditions regarding the type of income earned.
Eligibility Criteria
To claim the rebate under Section 87A for FY 2025-26, the following conditions must be met:
- Residency: The assessee must be a resident individual. Non-residents, HUFs, and firms are excluded.
- Income Threshold: The total income of the assessee must not exceed ₹12,00,000.
- Exclusion Principle: A crucial update in the Finance Act, 2025, clarifies that for the purpose of checking the ₹12,00,000 threshold, income taxable at special rates (such as STCG u/s 111A or LTCG u/s 112A) is excluded.
Quantum of Rebate
The rebate amount is calculated as the lower of:
- The actual income tax payable on the normal total income (excluding tax on special rate income); OR
- ₹60,000.
Important Note: The rebate is applied to the tax liability before the addition of Health and Education Cess.
2. Understanding Special Rate Income: STCG under Section 111A
Section 111A of the Income Tax Act, 1961, governs Short-Term Capital Gains arising from the transfer of specific assets.
Scope of Section 111A
This section applies when an assessee sells:
- Equity shares in a company;
- Units of an equity-oriented fund; or
- Units of a business trust.
Condition: The transaction must be subject to Securities Transaction Tax (STT), and the assets must be held for a period of 12 months or less.