Quick Summary
As discussions intensify ahead of the Union Budget 2026, a long-standing tax anomaly affecting small taxpayers has once again come under scrutiny. The Bombay Chamber of Commerce and Industry (BCCI) has urged the Finance Ministry to amend the Income Tax Act to ensure that individuals do not lose the benefit of the Section 87A tax rebate merely because they earn capital gains alongside modest regular income. In its Pre-Budget Memorandum for FY 2026-27, the chamber has highlighted how taxpayers wi
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FAQ :
The Section 87A tax rebate is available to resident individuals whose taxable income falls below a certain threshold, reducing or eliminating their tax liability on income taxed at slab rates.
Taxpayers can lose the Section 87A rebate if their total income includes capital gains taxed at special rates (like short-term capital gains under Section 111A or long-term capital gains under Section 112), even if their regular income is within the rebate limit.
Recent increases in capital gains tax rates, such as short-term capital gains rising from 15% to 20%, have made the denial of the Section 87A rebate more impactful for small taxpayers.
The BCCI proposes amending Sections 111A and 112 to allow small taxpayers to claim the Section 87A rebate on their slab-rate income, even when they have capital gains taxed at special rates.
The BCCI also recommended increasing the Section 87A rebate income threshold to Rs 12 lakh and the maximum rebate amount to Rs 60,000 under the New Tax Regime.
Yes, tax experts believe Budget 2026 offers an opportunity for the Finance Ministry to rationalise the rebate framework and remove unintended hardships for small taxpayers by extending limited rebate relief to cases involving capital gains.
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