Taxation is a constantly discussed issue, specifically queries related to capital gains. The taxation of capital gains under Rs 5 lakh has been a topic of discussion, mainly for individuals who depend entirely on it. Let us look at this matter to gain clarity and knowledge.

Capital Gain refers to earnings gained from the sale of capital assets such as stocks, mutual funds, real estate, or other investments. These gains are taxed under the Income Tax Act of 1961.

However, the rate at which they are taxed is determined by a variety of criteria, including the amount of profits and the individual’s overall income.

Based on current tax rules, long-term capital gains (LTCG) arising from the sale of listed equity shares or units of equity-oriented mutual funds are exempted from tax if the total LTCG in a financial year does not exceed Rs 1 lakh. However, if LTCG exceeds Rs 1 lakh then it will be taxed at a fixed rate of 10%.

But what about those who earn less than Rs 5 lakh and have no additional source of income?

Well, the answer lies in understanding the tax slabs and exemptions provided by the Income Tax Act.

Individuals under 60 are eligible for a Rs. 2.5 lakh basic exemption limit in 2023-24. Section 87A provides a refund of up to Rs. 12,500 for people earning up to Rs 5 lakh (under the old tax regime).

If an individual’s entire income, including capital gains, is less than Rs. 5 lakh, they may not need to pay any tax after applying for exemptions and refunds.

Also, under the new tax regime, a resident individual is eligible for a tax refund of up to Rs. 25,000 if their total income is less than Rs. 7 lakh.
Note: These limitations apply for long-term capital gains only. Short-term capital gains are taxed differently.

Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investor advisor before investing in mutual funds.