ITR 2025: As the time limit for filing income tax returns (ITR) is getting closer, many questions are being raised in the minds of small investors who adopt new tax systems. Especially for investors who invest in stock market or equity mutual funds and whose total taxable income is within Rs 7 lakh. The question is whether such investors in the new tax system can also avail zero tax, whose income includes short-term capital gains (STCG) and Long-Term Capital Gain (LTCG)?
According to the Income Tax Act, if the total taxable income of a person in the new tax system is Rs 7 lakh or less, then a discount of up to Rs 25,000 is given under Section 87A. Due to this exemption, the total tax of a person becomes zero. However, this advantage is subject to certain conditions, and these conditions are currently creating confusion for investors.
The Finance Act 2025 has an important explanation. According to this, if the income of a person includes capital gains from such sources, on which the Income Tax Act will not be given a discount of section 87A.
This means that if your income of Rs 7 lakh is included in equity shares or equity mutual funds, then you cannot claim this exemption in the new tax system. The reason for this is that these capital gains come under special tax rates and hence the exemption of normal slabs does not apply to it.
However, investors may get relief in certain situations. If the total income of capital gains from your equity is less than the basic exhalation limit of Rs 3 lakh, then you can adjust your capital gains within the same limit. For example, if your total income is Rs 1 lakh and you have earned an income of Rs 2 lakh as STCG and LTCG, then the total income of Rs 3 lakh will come in the basic exemption limit and there will be no tax on it.
In addition, if your capital income is from a source on which tax is levied at normal slab rates, such as dead mutual funds (purchased after 1 April 2023) or short -term sales of real estate, then in those cases you can claim discounts of section 87A and zero tax status may be possible.
Overall, it is clear for small equity investors that the benefit of zero tax on income up to Rs 7 lakh is possible in the new tax system only when your income is free from special tax rates or your total income can be absorbed into the basic exhalation limit. But if a large part of your income is in the form of STCG or LTCG and it goes above the range of Rs 3 lakh, then it will be necessary to pay tax.
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