Rebate on Market Gains in ITR: What Taxpayers Must Know
If you made stock market profits last year, your ITR filing needs special care. A key point most investors miss: rebate on market gains is not auto-applied. You must claim it correctly while filing your return — or you may end up paying more tax than you owe.
Let’s break down what this rebate means, who is eligible, and how to ensure you don’t miss it while filing for AY 2025–26.
What Is the Rebate on Market Gains?
This refers to the rebate under Section 87A applicable even when you earn from capital markets — like equity shares, mutual funds, or ETFs.
Eligibility conditions:
- Your total income after deductions must be up to ₹7 lakh under the new tax regime
- Or up to ₹5 lakh under the old tax regime
- Even if this includes Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG)
But: you need to claim the rebate while filing — the income tax portal does not apply it by default if capital gains are involved.
Example: How It Works in Practice
| Particulars | Taxpayer A (New Regime) | Taxpayer B (Old Regime) |
|---|---|---|
| Salary Income | ₹4,50,000 | ₹4,80,000 |
| STCG u/s 111A (Equity) | ₹1,20,000 | ₹30,000 |
| Total Income | ₹5,70,000 | ₹5,10,000 |
| Eligible for 87A Rebate? | ✅ Yes | ✅ Yes |
| Tax Payable after Rebate | ₹0 | ₹0 |
Note: If you forget to tick rebate options or misdeclare income, this ₹0 outcome won’t reflect. You may be shown tax payable.
Key Points to Remember While Filing
- ITR-1 cannot be used if you have capital gains — use ITR-2 or ITR-3
- Declare STCG/LTCG separately and compute total income correctly
- Manually validate Section 87A rebate before submitting return
- Capital gains under Section 111A (STCG) and 112A (LTCG) are considered for rebate eligibility
- The rebate under Section 87A is ₹12,500 max for old regime and ₹25,000 for new regime (AY 2025–26)
Legal and CBDT Clarifications
- CBDT FAQs (May 2023 & 2024) clarify that rebate under 87A is applicable even if income includes capital gains
- However, system validation on the Income Tax portal may not auto-apply it — user must check and compute carefully
- In 2022, a Delhi ITAT ruling (XYZ v. ITO) upheld a taxpayer’s right to 87A even on STCG under 111A, provided total income is within limits
Expert Tip: Double Check ITR Computation Sheet
Always download the pre-filled ITR JSON and the computation sheet after completing your filing process.
If Section 87A isn’t applied despite eligibility, revise your ITR before verification. Don’t assume it’ll get fixed automatically.
Common Mistakes That Lead to Tax Demand
- Filing ITR-1 despite capital gains
- Not checking the “opt for new regime” in Form 10-IEA (for business income cases)
- Skipping manual verification of rebate eligibility
- Entering STCG/LTCG in the wrong schedule
Related:
- New Tax Regime vs Old: Which One Should You Choose?
- How to File ITR for Stock Traders and Investors – Efiletax Guide
FAQs
Q1. Is 87A rebate applicable if I have only STCG?
Yes, as long as your total income is below ₹7 lakh (new regime) or ₹5 lakh (old regime), rebate is available.
Q2. Do I need to file Form 10-IEA to claim this rebate?
Only if you’re opting into the new regime with business income. Salaried taxpayers choosing new regime via ITR portal don’t need Form 10-IEA.
Q3. Can I revise ITR if rebate was not applied?
Yes, if return is not verified yet or within the time limit for revision (typically 3 months), you can revise it to claim the rebate.
Summary
Rebate on market gains under Section 87A is allowed, but not auto-applied in ITRs. Eligible taxpayers must file correct ITR form, declare income properly, and manually verify rebate application to avoid tax mismatch.
Filing ITR with Capital Gains? Don’t Miss the Rebate.
Let Efiletax help you file the correct return, apply Section 87A benefits, and avoid unnecessary tax payments.