Tax on Income Below ₹12 Lakh: Know This ‘Special’ Rule Before You Invest

Tax on Income Below ₹12 Lakh: Finance Minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh annually will not have to pay income tax under the New Tax Regime. Additionally, the basic tax exemption limit has been increased from ₹3 lakh to ₹4 lakh.

However, this exemption does not apply to all types of income. If your earnings include special rate income, such as capital gains from the stock market, you may still have to pay taxes—even if your total income is ₹12 lakh or less.

Who Will Still Have to Pay Tax Below ₹12 Lakh?

If your entire income comes from salary, you are fully exempt from tax up to ₹12 lakh.

However, if your earnings come from sources like stock market profits or mutual funds, then special tax rates will apply, and the ₹12 lakh tax exemption won’t be applicable.

Tax on ₹12 Lakh Income from Stocks or Mutual Funds

Short-Term Capital Gains (STCG) Tax Calculation
If you earn ₹12 lakh from selling stocks or mutual funds within 12 months, you must pay Short-Term Capital Gains (STCG) tax at 20%.

Here’s how it’s calculated

Total income from stocks/mutual funds: ₹12 lakh
Basic exemption under New Tax Regime: ₹4 lakh
Taxable income: ₹8 lakh
STCG tax @20% on ₹8 lakh = ₹1,60,000
Long-Term Capital Gains (LTCG) Tax Calculation
If you hold stocks or mutual funds for over 12 months before selling, you pay Long-Term Capital Gains (LTCG) tax at 12.5%.

Here’s the tax breakdown

Total LTCG from stocks/mutual funds: ₹12 lakh
LTCG tax-free limit: ₹1.25 lakh
Remaining taxable income: ₹10.75 lakh
Basic exemption under New Tax Regime: ₹4 lakh
Final taxable income: ₹6.75 lakh
LTCG tax @12.5% on ₹6.75 lakh = ₹84,375

What is Special Rate Income?

According to the Income Tax Department, special rate income includes:

Capital gains from stocks and mutual funds (under Section 111A & Section 112)

Lottery winnings and gambling income

Other specified high-tax-rate incomes
These income sources do not qualify for the tax rebate under Section 87A. This means you must pay taxes even if your total income is below ₹12 lakh.

Revised Tax Rebate in Budget 2025

Under the Old Tax Regime, Section 87A provided a ₹12,500 tax rebate on income up to ₹5 lakh.
In the New Tax Regime, the tax rebate limit has been raised to ₹60,000 for income up to ₹12 lakh.

Check Your Income Type Before Claiming Tax Exemption

If your earnings come entirely from salary, you do not need to pay tax up to ₹12 lakh. However, if your income includes capital gains from stocks, mutual funds, or other special rate sources, you may still have a tax liability.