The Finance Bill, 2025, has introduced key changes in the taxation of capital gains, lottery and gambling income, and the new tax regime slab rates. Here’s a detailed analysis of these updates.
1. Tax on Short-Term Capital Gains (STCG) on Listed Equity Shares and Equity-Oriented Mutual Funds
As per Section 111A of the Income Tax Act, the taxation of short-term capital gains (STCG) on equity shares and equity-oriented mutual funds has been revised.
New Tax Rates on STCG
| Type of Gain | Transaction Date | Tax Rate |
|---|---|---|
| STCG on listed equity shares, equity-oriented mutual funds, and business trust units (where STT is paid) | Before 23rd July 2024 | 15% |
| STCG on listed equity shares, equity-oriented mutual funds, and business trust units (where STT is paid) | On or after 23rd July 2024 | 20% |
Basic Exemption and Rebate Applicability
- If the taxpayer’s total income (excluding STCG) is below the basic exemption limit, STCG will first be adjusted against the remaining exemption limit.
- No rebate under Section 87A is available on STCG.
2. Tax on Long-Term Capital Gains (LTCG) on Listed Equity Shares and Equity-Oriented Mutual Funds
As per Section 112A of the Income Tax Act, the taxation of long-term capital gains (LTCG) on listed equity shares and equity-oriented mutual funds has been revised.
New Tax Rates on LTCG
| Type of Gain | Transaction Date | Tax Rate |
|---|---|---|
| LTCG on listed equity shares, equity-oriented mutual funds, and business trust units (where STT is paid) | Before 23rd July 2024 | 10% (on gains exceeding ₹1,00,000) |
| LTCG on listed equity shares, equity-oriented mutual funds, and business trust units (where STT is paid) | On or after 23rd July 2024 | 12.5% (on gains exceeding ₹1,25,000) |
Basic Exemption and Rebate Applicability
- The first ₹1,25,000 of LTCG remains tax-free.
- If the total income (excluding LTCG) is below the basic exemption limit, LTCG will first be adjusted against the remaining exemption limit.
- No rebate under Section 87A is available on LTCG.
3. Tax on Winnings from Lottery, Betting, Gambling, and Games
The taxation of winnings from lottery, betting, gambling, and other games remains unchanged under Section 115BB of the Income Tax Act.
New Tax Rates on Winnings
| Source of Income | Tax Rate | Basic Exemption | Rebate under Section 87A |
|---|---|---|---|
| Lottery, Gambling, Betting, and Game Winnings | 30% | Not available | Not available |
Key Points
- Flat 30% tax rate applies to all winnings.
- No deduction, basic exemption, or rebate is available.
- Online games are taxed separately under Section 115BBJ.
4. Changes in New Tax Regime Slab Rates (Section 115BAC)
The Finance Act (No.2), 2024, had introduced the following slab rates under the new tax regime for individuals, HUFs, AOPs (excluding co-operatives), BOIs, and artificial juridical persons.
Old Slab Rates under New Tax Regime (As per Finance (No.2) Act, 2024)
| Total Income (₹) | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Proposed New Slab Rates (Budget 2025)
| Total Income (₹ in Lakhs) | Tax Rate |
|---|---|
| 0 – 4 Lakhs | 0% |
| 4 – 8 Lakhs | 5% |
| 8 – 12 Lakhs | 10% |
| 12 – 16 Lakhs | 15% |
| 16 – 20 Lakhs | 20% |
| 20 – 24 Lakhs | 25% |
| More than 24 Lakhs | 30% |
Key Changes in the New Tax Regime
- Higher Exemption Limit: Tax-free income increased to ₹4 Lakhs from ₹3 Lakhs.
- Rebate under Section 87A: Maximum rebate available is ₹60,000, applicable for taxpayers earning up to ₹12 Lakhs.
- Marginal Relief on Income Above 12 Lakhs
- No rebate on income from capital gains, lottery winnings, or other incomes taxed at special rates.
5. Example: How ₹12 Lakh Exemption Does NOT Apply to Special Rate Income
Example 1: Normal Salary Income (Rebate Available)
Scenario: A person earns ₹12 Lakhs from salary under the new tax regime.
- As per the new tax slabs, total tax before rebate = ₹60,000
- Rebate of ₹60,000 under Section 87A is available.
- Final tax payable = ₹0
Example 2: Capital Gains Income (Rebate NOT Available)
Scenario: A person earns ₹12 Lakhs from long-term capital gains (LTCG) on shares.
- LTCG tax rate = 12.5% (as per new rates)
- Tax on ₹12 Lakhs LTCG = ₹12,00,000 – ₹1,25,000 exemption = ₹10,75,000 @ 12.5%
- Tax payable = ₹1,34,375
- No rebate under Section 87A available!
Example 3: Lottery Winnings (Rebate NOT Available)
Scenario: A person wins ₹12 Lakhs from the lottery.
- Lottery tax rate = 30%
- Tax payable = ₹12,00,000 @ 30% = ₹3,60,000
- No rebate under Section 87A available!
Example 4: STCG Tax (No Rebate Available)
A taxpayer earns ₹12 Lakhs as short-term capital gains from selling stocks on a recognized stock exchange after 23rd July 2024.
- STCG tax rate = 20%
- Tax on ₹12 Lakhs STCG = ₹12,00,000 × 20% = ₹2,40,000
- No rebate under Section 87A available!
- Final tax payable = ₹2,40,000
Conclusion
The Budget 2025 has made significant changes in capital gains taxation, lottery/gambling taxation, and new tax regime slab rates. The increase in LTCG and STCG tax rates and the revised income tax slabs under the new tax regime will impact investors and taxpayers alike.
The key takeaway is that rebate under Section 87A is not available for special income (such as capital gains and lottery winnings), meaning the ₹12 Lakh exemption does not apply in these cases.
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