Income tax alert: tax exemption will not be available even on earning less than 7 lakhs, know why

Since the income of up to Rs 7 lakh in the new tax system has been taxed, most of the employed people are assuming that if their total income is less than Rs 7 lakh, then they will not have to pay any tax. But wait, the Income Tax Department has now made one thing clear, which can be overwhelming on your pocket.

If there is some special income in your earnings, then you will not get the benefit of tax exemption even if you get less than Rs 7 lakh.

What is this new rule?

Under Section 87A of Income Tax, there is a tax exemption on annual income up to Rs 7 lakh, which makes your tax zero. But the Income Tax Department has made it clear that this exemption will not be applicable when your total income includes tax income on ‘special rates’.

Which income comes in ‘special rates’?

This is the income that is taxed not according to the slab, but at a fixed rate. These include mainly:

• Long Term Capital Gains (LTCG): Profit after one year from shares or equity mutual funds.
• Win from lottery, game show or online gaming: These directly levy 30% tax.
• Income from cryptocurrency: It also taxes 30% tax on this.

Let’s understand it with an example

Suppose your salary annual income 5 lakh rupees Is. Also, you sold some shares with you 1.5 lakh rupees The long term capital gains (LTCG).

Your total income 6.5 lakh rupeesWhich is less than the limit of 7 lakhs. You will feel that you will not have to pay any tax. But this is where the rule changes.

Because your income includes LTCG (special rate income), you will not get a discount of section 87A. You will have to pay tax at 10% at your LTCG of Rs 1.5 lakh (after a discount of 1 lakh). There will be no tax on your salary income, but you will have to pay tax on the capital gains.

What does it mean?

In clear terms, if your entire income is just from normal sources like salary, business or rent, then there is no tax up to 7 lakhs. But if it adds the amount won by lottery, stock market profits or gaming, then you will have to pay tax on that particular income, even if your total income is less than 7 lakhs.

So next time, check all the sources of your income before filing ITR, otherwise you can get notice from the tax department.