I am an older citizen with greeted pension income of less than ₹2 Lakh per year. But my savings are in mutual funds, capital schemes. What will be the tax liabilities if my long -term capital profits (LTCG) exceed ₹ 1.25 Lakh, while withdrawing from mutual funds?
RANGARAJU
According to the Income Tax Law of 1961 (‘The Law’), LTCG that arises from the sale of mutual funds oriented to equity or the capital shares of the list are tax 12.5 percent (plus cessation) if the sale occurs on July 23, 2024 or later.
Also under the law, each individual has the right to a basic exemption limit, below which no tax is paid. For a citizen of the elderly (60 years or older), the basic exemption limit is ₹ 3 Lakh for the 2025-26 evaluation year relevant for the financial year April 1, 2024 to March 31, 2025.
Now, if a senior citizen has pension income and LTCG of mutual capital funds or shares, the law allows the taxpayer to use and benefit from the unused portion of the basic exemption to reduce the taxable LTCG.
In your case:
Pension income: ₹ 2 Lakh (below the basic exemption limit ₹ 3 Lakh for older people),
LTCG: assuming that the same is ₹ 2 Lakh (your consultation seeks an answer if the LTCG exceeds ₹ 1.25 Lakh)
Tax calculation
* Your pension entry is ₹ 2 Lakh, which is below the basic tax exemption limit ₹ 3 Lakh for older people. Since pension income is subject to tax under the head “salary income”, you are eligible for a standard deduction of ₹ 50000 under section 16 of the Law. This reduces your net income of taxable pension to ₹ 1.50,000.
* You have reported LTCG or ₹ 2 Lakh. Under section 112a of the law, you have the right to an exemption from ₹ 1.25 Lakh in such profits. Therefore, only ₹ 75,000 is subject to taxes such as LTCG.
* After consulting both net pension income (₹ 1.5 Lakh) and the taxable portion of LTCG (₹ 75,000), its total taxable income is ₹ 2.25 Lakh. Since this is below the basic exemption limit of ₹ 3 LAKH for the elderly, there will be no fiscal responsibility in their case.
The previous fiscal calculation is based on certain cases and current tax exemptions / exemptions for the 2025-26 evaluation year.
The author is a public accountant in exercise
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Posted on April 26, 2025