Why you can’t get benefit of tax rebate on capital gains, lotteries

Budget 2025 has clarified that the tax rebate will not be available in respect of income that attracts special rates, such as capital gains. Under Section 87A, a taxpayer with a total income of up to Rs 5 lakh under the old regime and up to Rs 7 lakh under the new regime was entitled to a tax rebate of Rs 12,500 and Rs 25,000, respectively. Under the new regime, Budget 2025 now proposes a maximum rebate of Rs 60,000 for taxpayers having income of up to Rs 12 lakh.
However, the Budget provisions clarify that no rebate is now available on income from capital gains or lotteries or any other income on which special rate has been provided in the Act.However, as Deepak Joshi, Supreme Court advocate, says, this amendment is not retrospective in nature.
There is a history behind such a clarification. In respect of FY24, the I-T department’s filing utility allegedly disabled this rebate from July 5, 2024, for those filing under the new regime in specific cases, such as when tax was levied at special rates: for example, tax at 15% on short-term capital gains or 10% on long-term capital gains on sale of equity shares or equity-oriented mutual funds.
In response to a PIL filed by The Chamber of Tax Consultants (CTC), Bombay HC recently held that the utility should not prevent taxpayers from making rebate claims, as the correctness of such claims can be examined during the assessment process. In fact, pursuant to an interim order by HC in Dec, Central Board of Direct Taxes had increased the time limit to filing of a revised return to Jan 15.
Ketan Vajani, past president, CTC told TOI, “The proposed amendment is with effect from FY26 and, therefore, implicitly the taxpayers are justified in taking a view that the rebate is available against capital gains for the preceding financial years. Hopefully, tax authorities will follow the correct principle of law while processing income-tax returns for FY24 and FY25. Otherwise, the taxpayers will need to resort to appellate proceedings to get this legitimate benefit.”