The ₹12 lakh income threshold under the has led many taxpayers to believe they have no tax liability and, therefore, no need to file an income tax return.
That is not always the case.
For FY2025-26, resident individuals opting for the new tax regime can claim a rebate of up to ₹60,000 under Section 87A if their total income does not exceed ₹12 lakh. The rebate can reduce the tax payable on income taxed under the slab rates to zero.
However, the ₹12 lakh threshold is a rebate limit, not a blanket exemption from tax. Certain categories of income are taxed under separate provisions of the Income Tax Act and may continue to attract tax even when a taxpayer’s total income remains below ₹12 lakh. Because of this, the type of income earned is just as important as the total amount earned during the year.
Let us discuss a few situations where taxpayers may still have tax liability despite earning less than ₹12 lakh.
Long-term capital gains from shares and equity mutual funds
Investors who sold listed shares or redeemed equity mutual funds during the financial year should take a closer look at their tax liability. arising from listed equity shares and equity-oriented mutual funds are taxed under Section 112A of the Income Tax Act.
According to ClearTax, the rebate is not available against tax payable on long-term capital gains taxable under Section 112A. As a result, a taxpayer may qualify for the rebate on salary or other slab-rate income but still have tax payable on taxable equity capital gains.
For instance, a salaried individual whose regular income falls within the ₹12 lakh rebate threshold may still have tax payable if they realised taxable long-term capital gains from shares or equity mutual funds during the year.
The same issue can arise for investors who redeemed mutual fund units or rebalanced their portfolios, thereby generating capital gains.
Crypto gains are taxed at a flat 30%
The ₹12 lakh rebate can also create confusion for cryptocurrency investors. Income from Virtual Digital Assets (VDAs), including cryptocurrencies, is taxed under Section 115BBH of the Income Tax Act.
According to ClearTax, gains from crypto transactions are taxed at a flat rate of 30%, along with applicable surcharge and cess. The law also restricts the adjustment of losses against other income. Therefore, taxpayers who earned profits from selling cryptocurrencies should not assume that the ₹12 lakh rebate automatically eliminates their tax liability.
Even where total income remains below ₹12 lakh, crypto gains continue to be governed by the separate tax framework applicable to VDAs.
Lottery winnings have separate tax treatment
Income from lotteries, crossword puzzles, game shows and similar winnings is also taxed under special provisions of the Income Tax Act.
Such income does not fall under the normal slab-rate system that applies to salary and several other sources of income. Consequently, taxpayers with lottery winnings may still have tax payable even if their total income is below ₹12 lakh.
As a result, taxpayers with crypto profits cannot assume that the Section 87A rebate will eliminate their tax liability merely because their total income is below ₹12 lakh. Anyone who sold Bitcoin, Ethereum or other digital assets at a profit during the financial year should review the tax implications carefully while filing returns.
Why taxpayers should check the nature of their income
The ₹12 lakh threshold has provided substantial relief to taxpayers under the new tax regime, but it should not be mistaken for a blanket exemption from tax.
The Income Tax Department’s rebate under can reduce tax payable on income taxed under the slab rates. However, taxpayers who have earned income that is taxed under separate provisions, such as long-term capital gains on equities under Section 112A or crypto income under Section 115BBH, should review the tax treatment of those earnings separately.
Before assuming that no tax is payable, taxpayers should examine not only how much they earned during the year but also the source of that income. In some cases, income below ₹12 lakh may still result in a tax bill.