I am a senior citizen with pension income of less than ₹2 lakh per annum. But my savings are in mutual funds, equity schemes. What will be the tax liabilities if my Long-Term Capital Gains (LTCG) exceed ₹1.25 lakh, while withdrawing from mutual funds?
Rangaraju
As per the Income-tax Act, 1961 (‘the Act’), LTCG arising from the sale of equity-oriented mutual funds or listed equity shares are taxed under Section 112A of the Act. The LTCG from mutual funds etc. over ₹1.25 lakh will be taxed at 10 per cent (plus cess) if the sale happens before July 23, 2024, or at 12.5 per cent (plus cess) if the sale happens on or after July 23, 2024.
Also under the Act, every individual is entitled to a basic exemption limit, below which no tax is payable. For a resident senior citizen (aged 60 years or above), the basic exemption limit is ₹3 lakh for assessment year 2025-26 relevant to financial year April 1, 2024, to March 31, 2025.
Now, if a senior citizen has both pension income andLTCG from equity mutual funds or shares, the Act allows the taxpayer to utilise and take benefit of the unused portion of the basic exemption limit to reduce taxable LTCG.
In your case:
Pension income: ₹2 lakh (below the basic exemption limit of ₹3 lakh for senior citizens),
LTCG: Assuming the same to be ₹2 lakh (your query seeks a response if the LTCG exceeds ₹1.25 lakh)
Taxability calculation
* Your pension income is ₹2 lakh, which is below the basic tax exemption limit of ₹3 lakh for senior citizens. Since pension income is taxable under the head “Income from Salary”, you are eligible for a standard deduction of ₹50,000 under Section 16 of the Act. This brings your net taxable pension income down to ₹1,50,000.
* You have reported LTCG of ₹2 lakh. Under Section 112A of the Act, you are entitled to an exemption of ₹1.25 lakh on such gains. Therefore, only ₹75,000 is taxable as LTCG.
* After considering both your net pension income (₹1.5 lakh) and the taxable portion of LTCG (₹75,000), your total taxable income stands at ₹2.25 lakh. Since this is below the basic exemption limit of ₹3 lakh for senior citizens, there will be no tax liability in your case.
The above tax computation is based on certain assumptions and current tax provisions / exemptions relevant to assessment year 2025-26.
The author is a practising chartered accountant
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Published on April 26, 2025
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