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When selling mutual funds, stocks, or real estate, do we need to pay capital gains tax if income is below the basic exemption limit? Let us explore the reality.
Recently I received this comment on one of my blog posts “Basu, My wife has no salary income, The only source of income is interest from FD and LTCG/STCG from redeeming mutual fund units. Should we pay LTCG/STCG tax even though we don’t have salary income?”. Hence, thought to write this post for clarity and may be helpful for others too.
Do we need to pay capital gains tax if income is below basic exemption limit?
Who may claim the Basic Exemption Limit?
Before proceeding further, let us first understand the eligibility to claim the basic exemption limit. As per the rule, only Individuals and HUF are eligible to claim the basic exemption limit. Even NRIs are not allowed to claim the basic exemption limit.
How much is the current basic exemption limit?
As per the FY 2024-25, the basic exemption limit under the old tax regime for resident individuals whose age is below 60 years is Rs.2,50,000, if the age is more than 60 years but below 80 years, then it is Rs.3,00,000 and if the age is more than 80 years, then it is Rs.5,00,000. Under the new tax regime, the basic exemption limit is Rs.3,00,000.
Refer the latest tax slab rates “July 2024 Budget – New Income Tax Slab Rates FY 2024-25“.
Which income is first eligible to claim for basic exemption limit?
According to Sec.112 (1) a – Provided that where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty percent;
It means you have to first consider Other Income (other than capital gain) for availing the basic exemption limit. After availing of the exemption, if you have still room available for claiming the basic exemption limit, then you can consider the capital gain to adjust towards the basic exemption limit. You can’t adjust the capital gain towards the basic exemption limit as a priority.
Conclusion – Now it is clear that to avail capital gain adjustment towards the basic exemption limit, you must be an Individual or HUF and also first have to adjust other income (other than capital gain). If you still have room to claim the exemption, then only you can adjust it from the capital gain.
Refer our earlier posts related to this –
- Can I save Capital Gain Tax by repaying home loan?
- How to Pay ZERO Tax On Profits Of Mutual Funds and Stocks?
- Opted New Tax Regime – Should I stop investing in PPF, SSY, and NPS?
- Is Sovereign Gold Bond Tax-Free if bought from secondary market?
Hello Basu Sir,
I am a house wife. I do not have any income & I do not have nay FDs also.
Till now I didnt file income tax.
I will get some money from my parents & my husband during festivals and some occasions.
I am investing this money in mutual funds from last 4-5 years. If I redeem total MFs now the profits will be around 2.5 Lakhs.
As per my knowledge upto 1.25 Lakhs no LTCG. What about remaining profit?
Can we take exemption on total LTCG 2.5 Lakhs by filing income tax returns?
Please suggest.
Thank you
Dear Sailja,
In your case its tax free as I mentioned in the above artilce also. But better to file ITR.
There are different views. Some says if other income and capital fain income are less than the basic exemption limit, then no income tax is payable but some are saying that capital gain tax is payable even if other income is below basic tax exemtion limit or there is no other income. Both views are contradictory. Please clarify in detail as per the provisions of the Income Tax Act and rules.
Dear Jain,
The above post is based on the income tax rules only.
This is applicable only to resident indian & not NRI ,hence NRI with zero other income & only capital gain, he/she needs to pay LT/ST Gain Tax, without claiming any deduction.
Dear Hemant,
Yes, your understanding is correct.