Capital Gains Tax Below ₹12 Lakh in India: Is It Really Tax-Free If You Have No Other Income?

Meet Rohan. He has no salary, no business, no rent and no pension. This year he sold some shares and mutual fund units and booked about ₹11 lakh in profit. He read somewhere that “income up to ₹12 lakh is tax-free” and relaxed. He is thinking of treating himself to a nice dinner and then forgetting about the Income Tax Department until next July.

Hold the biryani order for a minute. The ₹12 lakh headline is real, but it is mostly about income taxed at normal slab rates. Capital gains on shares and equity mutual funds are taxed at special rates, and those do not get the Section 87A rebate. So the honest answer to “capital gains tax below 12 lakh” is it depends on the type of gain. Rohan could owe anything from zero to more than ₹60,000 on the same ₹11 lakh.

This guide explains how capital gains tax in India works for FY 2026-27 when you have no other income. It covers where the ₹12 lakh figure helps, where it does not, and what the basic exemption limit does for you. Every number is worked out step by step.

What Are Capital Gains? The Basics in Plain English

A capital asset is almost anything you own for investment or personal use. That includes shares, mutual fund units, ETFs, gold, property, unlisted shares and bonds. A capital gain arises when you sell, redeem or otherwise transfer that asset for more than it cost you. No sale means no capital gain, however pretty your portfolio looks on the app.

Capital gain = Sale price − (Cost of acquisition + Cost of improvement + Transfer expenses)

• Cost of acquisition: what you paid to buy the asset. For mutual funds, units are generally matched on a first-in-first-out basis.
• Transfer expenses: brokerage and similar costs of selling. Securities Transaction Tax (STT) is not deductible.
• STCG (short-term capital gain): profit on an asset held for a short period.
• LTCG (long-term capital gain): profit on an asset held beyond the long-term threshold.

Holding periods for FY 2026-27 in brief: more than 12 months for listed shares, equity mutual funds and other listed securities, and more than 24 months for property, unlisted shares and most other assets, including unlisted fund units such as gold fund-of-funds. Some debt funds are always treated as short-term, as covered in the mutual fund section below.

Current Capital Gains Tax Rates in India (FY 2026-27)

The rates below are the ones in force for FY 2026-27. The Union Budget 2026 did not change them. The equity-related rates and the ₹1.25 lakh limit apply to transfers on or after 23 July 2024, when the Finance (No. 2) Act, 2024 revised them.

What Does the ₹12 Lakh Income-Tax Threshold Really Mean?

Under the new tax regime, which is the default, the Section 87A (now Section 156) rebate is up to ₹60,000 for a resident individual whose total income does not exceed ₹12 lakh. The tax on ₹12 lakh of normal income works out to exactly ₹60,000, so the rebate wipes it out. That is the whole story behind “₹12 lakh tax-free income”.

Taxable income, total income, or something else?

The test is on total income, meaning your income after allowed deductions (a salaried person’s ₹75,000 standard deduction is why you hear “₹12.75 lakh” for salaried people). The rebate itself, however, only reduces tax on income taxed at normal slab rates. For the new regime, the law specifically excludes tax on special-rate capital gains from the rebate. This covers STCG under Section 111A/196 and LTCG under Section 112/197 and 112A/198.

Rebate versus exemption

• Exemption: the income is removed before tax is calculated. The ₹1.25 lakh equity LTCG exemption and the ₹4 lakh basic exemption limit work this way.
• Rebate: tax is calculated first, then a discount is applied to it. The Section 87A/156 rebate works this way, and only against specific tax.

That is why “income below ₹12 lakh = zero tax” can be misleading. It holds for slab-rate income. For special-rate capital gains, the tax can still be payable even when your total income is below ₹12 lakh. Also remember that “capital gains below ₹12 lakh” and “income below ₹12 lakh” are the same thing only when capital gains are your sole income. Even then, the type of gain decides the tax.

The Short Answer: Do You Pay Tax on Capital Gains Below ₹12 Lakh?

The Basic Exemption Limit: Your Quiet Helper When You Have No Other Income

The new regime’s basic exemption limit is ₹4,00,000 for all residents, whatever their age. A resident individual whose other income is below this limit can use the unused part against special-rate capital gains. If your only income is capital gains, the full ₹4 lakh is available. Under the old regime the limit is lower: ₹2.5 lakh below 60, ₹3 lakh for 60 to 79, and ₹5 lakh from 80.

Assumptions for the examples below: a resident individual, new regime, no other income, no losses to set off, STT paid on equity transactions, and income under ₹50 lakh (so no surcharge). Cess of 4% is added where tax arises. “Other assets” LTCG is taxed at 12.5% without indexation, and “other assets” STCG is taxed at slab rates.

Example 1: ₹5 lakh of capital gains

Example 2: ₹8 lakh of capital gains

Example 3: ₹10 lakh of capital gains

Example 4: ₹11.5 lakh of capital gains

Example 5: exactly ₹12 lakh of capital gains

Example 6: ₹12.5 lakh of capital gains

Why Some Capital Gains Are Taxed at Special Rates

Most income, such as salary, interest and rent, is stacked into your slabs. Parliament decided that certain capital gains should be taxed separately at fixed rates, partly to encourage long-term investing and partly to keep the calculation simple. The key provisions are:

• Section 111A (now 196): STCG on listed equity, equity mutual funds and business trust units where STT is paid. The rate is 20%.
• Section 112 (now 197): LTCG on assets other than those in Section 112A. The rate is 12.5%, or 20% with indexation for eligible land and buildings acquired before 23 July 2024.
• Section 112A (now 198): LTCG on listed equity, equity mutual funds and business trust units where STT conditions are met. The rate is 12.5% above ₹1.25 lakh.
• Section 87A (now 156): the rebate. The law bars it against tax on these special-rate gains under the new regime.
• Basic exemption adjustment: built into these sections, so a resident individual with a shortfall in other income can use the unused exemption against the gain.

Think of it as a two-lane road. Normal income travels on the slab lane and gets the rebate. Special-rate gains travel on their own lane, with their own speed limit (the flat rate) and their own toll booth (the ₹1.25 lakh exemption), but no rebate. The basic exemption limit is a shared fuel card: you can spend it in either lane, but only once.

How Capital Gains Interact With the Basic Exemption Limit

This is where “no other income” becomes an advantage. For a resident individual, if income excluding the special-rate gain is below the basic exemption limit, the shortfall is deducted from the gain, and only the balance is taxed at the special rate. The order of use is: normal income first, then STCG under Section 111A/196, then LTCG.

Case 1: no other income, equity LTCG of ₹6 lakh

₹6,00,000 − ₹1,25,000 exemption = ₹4,75,000. Less unused basic exemption of ₹4,00,000 = ₹75,000. Tax at 12.5% = ₹9,375. Cess ₹375. Final tax: ₹9,750. The tax-free ceiling for pure equity LTCG is therefore ₹5.25 lakh.

Case 2: interest income of ₹2 lakh plus equity LTCG of ₹6 lakh

Unused basic exemption = ₹4,00,000 − ₹2,00,000 = ₹2,00,000. Taxable LTCG = ₹6,00,000 − ₹1,25,000 − ₹2,00,000 = ₹2,75,000. Tax at 12.5% = ₹34,375. Cess ₹1,375. Final tax: ₹35,750. The interest income itself is covered by the exemption and rebate, so it adds no tax.

Case 3: no other income, STCG of ₹3 lakh plus LTCG of ₹4 lakh (both equity)

The ₹4 lakh basic exemption goes to STCG first: ₹3,00,000 is absorbed, leaving ₹1,00,000 of exemption. For LTCG: ₹4,00,000 − ₹1,25,000 = ₹2,75,000; less remaining exemption ₹1,00,000 = ₹1,75,000. Tax at 12.5% = ₹21,875. Cess ₹875. Final tax: ₹22,750.

Case 4: other income exceeds ₹4 lakh

Suppose interest income is ₹4.5 lakh and equity STCG is ₹2 lakh. No basic exemption is left for the STCG. Slab tax on ₹4.5 lakh is ₹2,500, which the rebate removes because total income (₹6.5 lakh) is below ₹12 lakh. The STCG is taxed at 20%: ₹40,000, plus cess ₹1,600. Final tax: ₹41,600. The rebate wiped out the slab tax but did nothing to the special-rate tax.

Case 5: non-resident individual

A non-resident does not get the unused-exemption adjustment against these gains and cannot claim the Section 87A/156 rebate. Equity STCG of ₹5 lakh would attract 20% on the full amount: ₹1,00,000 plus cess ₹4,000, so ₹1,04,000. Residential status therefore matters a great deal.

Comparison Table: Likely Tax in Common Scenarios

Resident individual, new regime, FY 2026-27, income below ₹50 lakh. Figures are approximate and before 4% cess.

Section 87A (Now Section 156) in Simple Language

• What it is: a tax rebate for low-income taxpayers, meant to leave them with no tax on normal income up to a threshold.
• Who can claim: resident individuals only. Non-residents, HUFs and companies cannot.
• New regime (default): rebate of up to ₹60,000 when total income does not exceed ₹12 lakh. Marginal relief applies just above ₹12 lakh so that tax never exceeds the income above that level.
• Old regime: rebate of up to ₹12,500 when total income does not exceed ₹5 lakh. It is also not available against LTCG tax under Section 112A/198.
• Cannot exceed the tax: the rebate only cancels tax, it never creates a refund. Cess is calculated after the rebate.
• Capital gains caveat: in the new regime, tax on gains taxed at special rates (Sections 111A, 112 and 112A, or 196, 197 and 198) is excluded from the rebate. This was made explicit by the Finance Act, 2025, effective from AY 2026-27 (FY 2025-26).

7 Mistakes Investors Make When They Hear “₹12 Lakh Is Tax-Free”

• 1. Assuming all capital gains are tax-free below ₹12 lakh. Only slab-rate gains benefit from the rebate. Equity gains and other long-term gains do not.
• 2. Confusing rebate with exemption. A rebate discounts tax already calculated. An exemption removes income before tax is calculated. They behave differently.
• 3. Ignoring the type of capital gain. STCG versus LTCG, and equity versus non-equity, can change the tax by lakhs on the same profit.
• 4. Ignoring the basic exemption limit. It is the real reason some no-other-income investors owe little or nothing, and many forget to use it.
• 5. Forgetting cess. The 4% health and education cess is added to the tax, so ₹61,750 is the right figure for Example 3A, not ₹59,375.
• 6. Using outdated rates. Pre-23 July 2024 rates (15% STCG, 10% LTCG, ₹1 lakh exemption) no longer apply to current transfers, and old section numbers have changed.
• 7. Assuming mutual-fund gains and equity gains are always taxed the same. Equity funds follow equity rules, but debt, gold and many hybrid funds follow different ones.

Capital Gains Tax on Mutual Funds: What Investors Should Know

The tax on a mutual fund depends on what the scheme holds, not on its name. The table below is a general guide for FY 2026-27. Always check the fund house’s own tax reckoner for borderline schemes.

Why it matters for the ₹12 lakh question: Short-term gains from a debt fund or a gold ETF are taxed at slab rates, so they can benefit from the basic exemption and the Section 87A/156 rebate. Equity fund gains cannot use the rebate. If you hold both, the same ₹1.25 lakh equity LTCG exemption covers your shares and equity funds together. Some categories, such as international funds and balanced advantage funds, depend on how the scheme is structured, so check the scheme’s tax note before you rely on any single rule.

Do You Have to File an Income Tax Return With Only Capital Gains?

Often yes, even when your tax comes to zero. The filing requirement is linked to the basic exemption limit as defined for filing purposes, and this can be lower than the ₹4 lakh new-regime limit. Someone with ₹3.5 lakh of capital gains and zero tax may still be required to file, so check this on the e-filing portal or with a professional.

• Which form: ITR-2 is the usual form for individuals with capital gains and no business or professional income. ITR-1 is available only in limited cases, such as small LTCG under Section 112A/198 up to ₹1.25 lakh, and subject to its other conditions.
• Why file even at nil tax: it creates a record of income for loans and visas, lets you claim refunds of TDS, and is required to carry forward capital losses.
• Reporting: use the capital gains schedule, reporting each sale with purchase date, sale date, cost and sale value.
• AIS and Form 26AS: check them before filing. They show sale transactions and TDS reported to the department, and a mismatch can trigger a notice.
• Statements: download capital gains statements from your broker and from mutual fund platforms such as the AMC, CAMS or KFintech, and reconcile them with your own records.
• Due date: the usual date for individuals without business income is 31 July after the year ends, but dates have been revised in recent years, so confirm the date for the year you are filing.

Worked Example: A Capital Gains Tax Calculation for an Investor With No Other Income

Profile: Aarav, a resident individual, new regime, FY 2026-27. He has no salary, no business income, no interest, no rent. During the year he books these gains, with STT paid:

• Equity STCG (shares sold after 8 months): ₹2,00,000
• Equity LTCG (mutual fund units held over 12 months): ₹5,00,000

Aarav’s gains of ₹7 lakh are well below ₹12 lakh, yet he owes ₹22,750 (an effective rate of about 3.25%). Because his tax is above ₹10,000, he should also look at advance tax rules, since interest for short payment can apply. Note that this is an illustration, and your own facts (losses, exemptions, residency) can change the result.

Are There Exemptions and Deductions Before Tax Is Calculated?

The entire gain is not always taxable. Before you reach the final taxable figure, these can reduce it:

• Set-off of losses: capital losses can be set off against capital gains of the same or other types as per the rules, and unused losses can be carried forward for 8 years if you file on time.
• The ₹1.25 lakh equity LTCG exemption (Sections 198/112A).
• Reinvestment exemptions on property and certain assets: Sections 54, 54F and 54EC in the 1961 numbering, which were renumbered under the 2025 Act. These have their own conditions and limits.
• Chapter VI-A deductions (such as the old Section 80C) are generally not available against special-rate capital gains, and most are not available in the new regime anyway.

Frequently Asked Questions

Is capital gain below ₹12 lakh tax-free in India?

No, not as a general rule. Only gains taxed at slab rates can be fully covered by the rebate. Equity and other special-rate gains can attract tax even when total income is below ₹12 lakh.

If I have no other income, do I pay tax on capital gains?

Possibly. As a resident, you can use the full ₹4 lakh basic exemption against special-rate gains. So equity LTCG up to ₹5.25 lakh, and equity STCG or other LTCG up to ₹4 lakh, are effectively tax-free. Above those levels, tax applies.

Is ₹12 lakh income tax-free under the new tax regime?

For normal slab-rate income of a resident individual, yes, because of the ₹60,000 rebate. Salaried taxpayers can stretch this to about ₹12.75 lakh after the ₹75,000 standard deduction. This does not extend to special-rate capital gains.

Does Section 87A apply to capital gains?

Only to capital gains taxed at slab rates, such as short-term gains on property, gold or unlisted assets. Under the new regime it does not apply to tax on gains under Sections 111A, 112 and 112A (now 196, 197 and 198).

Can I use the basic exemption limit against capital gains?

Yes, if you are a resident individual or HUF and your other income is below the limit. The unused part reduces the special-rate gain. Non-residents cannot do this.

Is LTCG below ₹12 lakh tax-free?

No. Equity LTCG is tax-free only up to ₹1.25 lakh, plus any unused basic exemption (₹5.25 lakh in total when you have no other income). With no other income, LTCG on other assets is tax-free only up to ₹4 lakh.

Is STCG below ₹12 lakh tax-free?

Equity STCG: no, it is taxed at 20% above the unused basic exemption. STCG taxed at slab rates (non-equity assets) can be fully covered by the rebate up to ₹12 lakh of total income.

Are mutual fund capital gains included in the ₹12 lakh limit?

Yes, they are part of total income. But whether they qualify for the rebate depends on the fund type. Equity fund gains are special-rate gains with no rebate. Debt fund gains taxed at slab rates can use it.

Do senior citizens get any different treatment?

In the new regime, the basic exemption is ₹4 lakh for everyone, whatever the age. In the old regime it is ₹3 lakh for ages 60 to 79 and ₹5 lakh from 80. The special capital gains rates are the same for all residents.

Do I need to file ITR if my only income is capital gains?

Often yes, even if the tax is nil, because the filing trigger may be lower than the ₹4 lakh basic exemption. Filing is also needed to carry forward losses. ITR-2 is the usual form.

What happens if capital gains are exactly ₹12 lakh?

It depends on the type. Slab-taxed gains: nil tax after rebate. Equity LTCG: about ₹87,750 including cess. Equity STCG: about ₹1,66,400. Other-asset LTCG: about ₹1,04,000. See Example 5.

What happens if capital gains are ₹12.5 lakh?

Slab-taxed gains: about ₹52,000 with cess after marginal relief. Equity LTCG: about ₹94,250. Equity STCG: about ₹1,76,800. Other-asset LTCG: about ₹1,10,500. See Example 6.

Does 4% cess apply to capital gains tax?

Yes. The 4% health and education cess applies to the tax (plus any surcharge) on every kind of capital gain.

What is the difference between tax exemption and tax rebate?

An exemption excludes income from tax calculation, such as the ₹1.25 lakh equity LTCG exemption. A rebate reduces tax after it is calculated, such as the Section 87A/156 rebate.

Do the old section numbers still matter?

For FY 2026-27 onwards, the Income-tax Act, 2025 is the governing law, so use Sections 196, 197, 198 and 156. Older articles, broker statements and past-year returns still use 111A, 112, 112A and 87A.

Key Takeaways

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