Income Tax AY 2026-27: Zero Tax Possible Up to Rs 12.75 Lakh Salary, But ITR Filing is Crucial

Income Tax AY 2026-27: Salaried individuals earning up to Rs 12.75 lakh annually may enjoy zero tax liability due to enhanced Section 87A rebate and standard deduction, but filing an ITR is crucial. However, this rebate doesn't apply to special incomes like capital gains, Virtual Digital Assets (VDAs), and lottery winnings, which are taxed at specific rates.

The Income Tax Return (ITR) filing due date for AY 2026-2027 for students, pensioners, salaried and other taxpayers who are not liable for tax audit is July 31, 2026.

Moreover, if a salaried employee gets up to Rs 12.75 lakh annual salary, then thanks to enhanced Section 87A tax rebate and standard deduction, no tax needs to be paid. However, to claim the enhanced Section 87A tax rebate, salaried individuals need to file ITR as without ITR, Section 87A tax rebate is not available. Do note that only salaried employees get the benefit of standard deduction.

However, this Section 87A rebate is not applicable for special rate income like capital gains, VDA, speculative incomes (lottery, horse racing, etc). On these special rate incomes you need to pay the tax at specified rate.

Do note that AY 2026-2027 (FY 2025-2026) is not the same as Tax Year 2026-2027. For Tax Year 2026-2027, the ITR filing due date is July 31, 2027.

Here are some incomes on which you need to pay tax even if your salary income is less than Rs 12.75 lakh:

Capital gains

Since capital gain income is taxed at special rates, Section 87A tax rebate is not available here and thus you need to pay the appropriate tax at the specified special rate.

Long term capital gain income from listed equity shares, real estate, mutual funds, etc are taxed at special rates. So on these incomes, you can’t get Section 87A tax rebate benefits and thus need to pay the specified tax rates. Moreover, since Budget 2025, Section 87A tax rebate is not available on short term capital gains also.

Table showing the capital gain rates:

Types of asset

Holding period for long term capital asset

Long term capital gains (LTCG)

Short term capital gains (STCG)

Listed equity shares

12 months

Gains up to Rs 1.25 lakh exempt; balance taxable at 12.5% without indexation

20%**

Listed equity mutual funds

12 months

Gains up to Rs 1.25 lakh exempt; balance taxable at 12.5% without indexation

20%***

Listed tax-free bonds

12 months

12.5%, indexation benefit not available (interest from notified tax-free bonds is exempt from tax)

Tax at slab rates

Listed debentures

12 months

12.5%, indexation benefit not available (interest from notified tax-free bonds is exempt from tax)

Tax at slab rates

Debt mutual funds (more than 65% in debt and money market instruments)

24 months

If acquired prior to April 1, 2023: 12.5% without indexation

Acquired on or after April 1, 2023: Tax at applicable slab rates, indexation benefit not available

If acquired prior to April 1, 2023: 12.5% without indexation

Acquired on or after April 1, 2023: Tax at applicable slab rates, indexation benefit not available

Unlisted shares

24 months

12.5% without indexation

Tax at slab rates

Unlisted debentures and unlisted bonds

24 months

Tax at applicable slab rates, indexation benefit not available

Tax at applicable slab rates, indexation benefit not available

Immovable property

24 months

Acquired before July 23, 2024: 20% with indexation or 12.5% without indexation

Acquired on or after July 23, 2024: 12.5% without indexation

Tax at slab rates

Source: CA Suresh Surana

**If STT of 0.1% each is paid by seller and buyer in both cases

***If STT of 0.001% is paid by seller; STT rates mentioned above are for delivery based transactions only

Exemption available if STT paid on sale and also on purchase, in case of equity shares acquired on or after October 1, 2004 (subject to certain exceptions notified)

Virtual digital asset (VDA) taxation

For crypto income, you need to file schedule VDA in the ITR and pay tax at 30% rate plus cess and surcharge. For VDA income, you can only take the benefit of its cost of acquisition and no other expense. For VDA income, you don’t get the benefit of basic exemption limits also.

Lottery winnings and other speculative incomes

Like the VDA taxation framework, speculative incomes like lottery, horse racing, etc are taxed at flat 30%.

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