Tax Calculation for FY 2025-26: Salary and Long-Term Capital Gains
Question: What will my tax liability be in FY 2025-26 if I earn ₹10 lakh from salary and ₹3 lakh in long-term capital gains from selling mutual fund units?
Answer by CA Dr. Suresh Surana
For an individual earning ₹10 lakh from salary and ₹3 lakh from long-term capital gains (LTCG) from equity mutual fund units in FY 2025-26, the tax liability under the new tax regime is calculated as follows:
Tax Calculation
Salary Income
Under the new tax regime, a rebate under Section 87A is available for taxable incomes below ₹12 lakh. After applying the standard deduction, the taxable salary income amounts to ₹9,25,000.
Long-Term Capital Gains from Equity Mutual Funds
LTCG exceeding ₹1.25 lakh is taxable at a rate of 12.5%. Given the total LTCG of ₹3 lakh, the taxable portion after accounting for the exemption amounting to ₹1.25 lakh is ₹1.75 lakh. This portion incurs a tax of ₹21,875.
Rebate Under Section 87A
The total income of ₹11,00,000 (₹9,25,000 from salary plus ₹1,75,000 from LTCG) qualifies for the rebate under Section 87A, which effectively reduces the tax liability on salary income to zero. However, it is important to note that the Section 87A rebate does not apply to income subject to special rates under Sections 112A or 111A, such as capital gains.
Thus, the total tax liability for FY 2025-26 under the new tax regime is ₹22,750 (comprising ₹21,875 from long-term capital gains tax and ₹875 for education cess).
Breakdown of Tax Liability
| Particulars | Amount (₹) |
|---|---|
| Gross Salary | 10,00,000 |
| Less: Standard Deduction under Section 16 | (75,000) |
| Net Taxable Salary | 9,25,000 |
| Long-Term Capital Gains from Mutual Funds | 3,00,000 |
| Less: Exemption under Section 112A | (1,25,000) |
| Capital Gains Chargeable to Tax | 1,75,000 |
| Tax on Salary Income | 32,500 |
| Tax on Capital Gains @ 12.5%* | 21,875 |
| Total Basic Tax Liability | 54,375 |
| Less: Rebate under Section 87A | (32,500) |
| Basic Tax Liability (after Rebate) | 21,875 |
| Add: Education Cess @ 4% | 875 |
| Total Tax Liability | 22,750 |
Note: If the long-term capital gains were realized before July 23, 2024, a tax rate of 10% would apply instead of 12.5%. In this scenario, it is assumed that the LTCG was derived after July 23, 2024.