Last Updated on July 2, 2022 at 9:17 am
A viewer on our YouTube channel asks, “I have a net taxable income of around 4.8L( excluding LTGC, after all the deductions) and LTGC( from Equity MF ) of 37k. So the problem I am facing is that whenever I am putting the LTGC amount in 112A then it is added back to my net income (4.8L+ 37K ) =5.27 Lac and I’m not getting the benefit of Rs. 12,500 rebate under section 87A and eventually taxed around 14k”. In this article, let us discuss this curious problem.
What is the 87A tax rebate? Income tax up to Rs. 2.5 lakhs is tax-free for those below 60 years of age. The 87A rebate allows us to reduce the tax on net total income* to zero provided the net total income is less than or equal to Rs. 5 lakhs.
* after 80C, 80D etc. deductions under the old tax regime or without these in the new tax regimen. We shall use the term “net total income” repeatedly below as it is key to this problem.
Let us consider a net total income of Rs. 4,80,000 without any equity LTCG. The tax to be paid is Rs. 9000 (before cess). The 87A rebate to be applied (before cess) is Rs. 9000. Therefore the tax to be paid is zero.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
Now let us include to this Rs. 4,80,000 an equity LTCG of Rs. 20,000. So the net total income = Rs. 5,00,000. It is important to understand that the 87A rebate does not apply to any capital gains.
The tax before cess is still Rs. 9,000 as equity LTCG equal to or below Rs. one lakh is tax-free. The 87A rebate is Rs. 9000 and the tax payable is zero.
Now consider an equity LTCG of Rs. 21,000. The equity LTCG tax is still zero. However, the net total income is now Rs. 5,01,000 and now the ITR form refuses to include the 87A rebate. The tax payable now is Rs. 9000!
Consider another example: Suppose the income after 80C,80D etc. deductions is Rs. 3,90,000. The tax is Rs. 4500 (before cess). The 87A rebate is Rs. 4500. So the next tax payable is zero.
Now add equity LTCG of Rs. 1.1 Lakhs. The net total income is Rs. 5 Lakhs. The tax payable (before cess) is Rs. 4500 + Rs. 1000 (10% of Rs. 10,000 equity LTCG. The first one lakh is tax-free). The 87A rebate is Rs. 4500 and the net tax payable is Rs. 1000. the rebate does not apply to the tax on capital gains.
What is the problem here? The IT dept includes equity LTCG to the net total income without accounting for the Rs. 1 lakh tax-free limit. Therefore if the net total income is above Rs. 5 lakh even if it is because of tax-free LTCG, the 87A rebate is not being applied. Another situation has been described here: No applicability of section 14A on LTCG exemption of Rs.1 Lakh.
This seems unfair in our opinion. Including a tax-free income to the total income does not make sense and even if done it should not increase the tax! The IT dept. should fix this inconsistency by only including the taxable portion of equity LTCG (beyond the first 1 Lakh) to the net total income before the 87A rebate is applied.
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News. 
Add freefincal as a preferred news source
You can also follow freefincal on Google News. 
Explore 1,000+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥 Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary. Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence. Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle. Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos! Track your mutual funds and stock investments with our Google Sheet! We also publish monthly screeners for- Equity mutual funds
- Debt and hybrid mutual funds
- Index funds
- ETFs
- Momentum and low-volatility stock screeners
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
Audible Link: Listen to the Let's Get Rich with Pattu Podcast
You can also watch podcast episodes on the OfSpin Media Friends YouTube Channel
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice. Connect with him via Twitter(X) LinkedIn YouTube Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (Published by CNBC TV18) for DIY investors. 
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
Your Ultimate Guide to Travel
