Income Tax Rebate under Section 87A

Section 87A provides eligible taxpayers with a full income tax rebate if their total income is below Rs 5 lakh under the old tax regime. As proposed in Budget 2025, this rebate will be available if total income does not exceed Rs 12 lakh.
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06-February-2025

The 2025 Union Budget has revised the Section 87A tax rebate under the Income Tax Act of 1961. For the new tax regime, resident individuals with taxable income up to Rs. 12 lakh will now be eligible for the rebate in FY 2025-26 (AY 2026-27), a significant increase from the previous limit of Rs. 7 lakh in FY 2024-25 (AY 2025-26). This adjustment will result in lower tax liabilities for eligible taxpayers.

Budget update - Financial year 2025-2026

  • Increased rebate: The income tax rebate for individuals under the new tax regime has been increased to Rs. 60,000 for the financial year 2025-2026.
  • Income limit: This rebate applies to individuals with a taxable income of up to Rs. 12 lakh under the new tax regime.
  • Special rates exclusion: The Rs. 60,000 rebate is not applicable to income that is taxed at special rates.
  • Marginal relief: The concept of marginal relief on the rebate continues to be applicable.

What is an income tax rebate?

Income tax rebate refers to a deduction from the total tax payable by an individual. Unlike tax deductions that reduce taxable income, rebates directly decrease the tax liability, resulting in a reduction of the final tax payable. Taxpayers can claim a tax rebate if they have overpaid taxes or if they are eligible for a tax credit.

What is Section 87A rebate for Financial Year (FY) 2025-26 and Assessment Year (AY) 2026-27?

The Union Budget 2025 has increased the tax rebate limit under Section 87A of the Income Tax Act for resident individuals opting for the new tax regime. For FY 2025-26 (AY 2026-27), the rebate is now available for those with taxable incomes up to Rs. 12 lakh, up from Rs. 7 lakh in the previous financial year. This allows individuals with incomes up to Rs. 12 lakh to effectively pay no income tax. The rebate under the old tax regime remains at Rs. 12,500 for individuals with taxable incomes up to Rs. 5 lakh.

Read more about the tax benefits of health insurance

What are example of rebate u/s 87A?

Here are the examples of section 87A of income tax act:

FY 2024-25) income source

Amount under old tax regime

Amount under new tax regime

Gross Total Income

Rs. 7 lakhs

Rs. 7.5 lakhs

Standard Deductions

Rs. 50,000

Rs. 75,000*

Section 80C Deductions

Rs. 1.5 lakhs

--

Total Taxable Income

Rs. 5 lakhs

Rs. 6.75 lakhs

Income Tax Payable

Rs. 12,500

Rs. 18,750

Section 87A Rebate

Rs. 12,500

Rs. 18,750

Tax payable

NIL

NIL


What is the income tax rebate under section 87A?

The income tax rebate under Section 87A of the Income Tax Act allows eligible resident individuals to reduce their tax liability. Here's a breakdown of the rebate as per the latest updates:   

  • For FY 2025-26 (AY 2026-27) under the New Tax Regime: A resident individual with a taxable income not exceeding Rs. 12 lakh is eligible for a tax rebate of up to Rs. 60,000. This means individuals with incomes up to Rs. 12 lakh effectively pay no income tax.   
  • For FY 2025-26 (AY 2026-27) under the Old Tax Regime: The rebate under Section 87A remains at Rs. 12,500 for individuals with taxable income up to Rs. 5 lakh.

Also, read: 115bac of income tax act

Understanding the Section 87A Rebate for FY 2025-26 and AY 2026-27

Section 87A of the Income Tax Act provides a tax rebate to resident individuals with taxable income below a specified limit. For the financial year 2025-26 (Assessment Year 2026-27), the rebate limit under the new tax regime has been increased to Rs. 12 lakh. Individuals with taxable income up to this amount are eligible for a rebate of up to Rs. 60,000 or the total tax payable, whichever is lower. It's essential to understand the income tax slabs for FY 25-26 under both the old and new tax regimes for accurate tax calculations. Under the old tax regime, the Section 87A rebate remains at Rs. 12,500 for individuals with taxable income up to Rs. 5 lakh.

What are Tax Slab Rates for FY 2025- 26 (AY 2026-27) as per Union Budget 2025

Here are the tax slab rates for FY 2025-26 (AY 2026-27)

Tax Slab

Tax Rate

0 - Rs. 4,00,000

No Tax

Rs. 4,00,001 - Rs. 8,00,000

5%

Rs. 8,00,001 - Rs. 12,00,000

10%

Rs. 12,00,001 - Rs. 16,00,000

15%

Rs. 16,00,001 - Rs. 20,00,000

20%

Rs. 20,00,001 - Rs. 24,00,000

25%

Rs. 24,00,001 and Above

30%


What is the rebate amount under Section 87A for FY 2025-26?

The table below illustrates the evolution of the tax rebate under Section 87A of the Income Tax Act in India over the years. It highlights the changes in the income limit for eligibility and the corresponding rebate amount. Notably, the 2025-26 financial year saw a significant increase in the rebate limit for those opting for the new tax regime, reflecting the government's efforts to provide tax relief to individuals. The data is categorized by financial year, specifying both the old and new tax regimes where applicable, the total income taxable limit, and the maximum rebate available under Section 87A.

Financial Year

Total Income Taxable Limit

Rebate under Section 87A

2025-26

New Tax Regime: Rs. 12 lakhs
Old Tax Regime: Rs. 5 lakhs

Rs. 60,000
Rs. 12,500

2024-25

New Tax Regime: Rs. 7 lakhs
Old Tax Regime: Rs. 5 lakhs

Rs. 25,000
Rs. 12,500

2023-24

New Tax Regime: Rs. 7 lakhs
Old Tax Regime: Rs. 5 lakhs

Rs. 25,000
Rs. 12,500

2022-23

Rs. 5 lakhs

Rs. 12,500

2021-22

Rs. 5 lakhs

Rs. 12,500

2020-21

Rs. 5 lakhs

Rs. 12,500

2019-20

Rs. 5 lakhs

Rs. 12,500

2018-19

Rs. 3.5 lakhs

Rs. 2,500

2017-18

Rs. 3.5 lakhs

Rs. 2,500

2016-17

Rs. 5 lakhs

Rs. 5,000

2015-16

Rs. 5 lakhs

Rs. 2,000

2014-15

Rs. 5 lakhs

Rs. 2,000

2013-14

Rs. 5 lakhs

Rs. 2,000

 

What is the tax rebate Under the Old Tax Regime?

  • Eligibility: Taxable income up to Rs. 5,00,000.
  • Rebate amount: Rs. 12,500.
  • Applicability: Available to resident individuals.
  • Reduces tax liability: Effectively lowers the income tax owed.

What is the Tax Rebate Under the New Tax Regime?

  • Up to Rs. 12 Lakhs: Full tax rebate (up to Rs. 60,000) under the new regime
  • Rs. 8 Lakhs Income: Rs. 20,000 rebate benefit, resulting in zero tax
  • Rs. 9 Lakhs Income: Rs. 30,000 rebate benefit, resulting in zero tax.
  • Rs. 10 Lakhs Income: Rs. 40,000 rebate benefit, resulting in zero tax.
  • Rs. 11 Lakhs Income: Rs. 50,000 rebate benefit, resulting in zero tax.
  • Rs. 12 Lakhs Income: Rs. 60,000 rebate benefit, resulting in zero tax.   
  • Rs. 16 Lakhs Income: Rebate reduces to zero; Rs. 1,20,000 tax payable under the new regime.

Income

Tax on Slabs and rates

Benefit of

Rebate Benefit

Total Benefit

Tax After Rebate Benefit

Present (A)

Proposed (B)

Rate/Slab (A) - (B)

Full up to Rs. 12 lakhs

8 lakhs

Rs. 30,000

Rs. 20,000

Rs. 10,000

Rs. 20,000

Rs. 30,000

0

9 lakhs

Rs. 40,000

Rs. 30,000

Rs. 10,000

Rs. 30,000

Rs. 40,000

0

10 lakhs

Rs. 50,000

Rs. 40,000

Rs. 10,000

Rs. 40,000

Rs. 50,000

0

11 lakhs

Rs. 65,000

Rs. 50,000

Rs. 15,000

Rs. 50,000

Rs. 65,000

0

12 lakhs

Rs. 80,000

Rs. 60,000

Rs. 20,000

Rs. 60,000

Rs. 80,000

0

16 lakhs

Rs. 1,70,000

Rs. 1,20,000

Rs. 50,000

0

Rs. 50,000

Rs. 1,20,000

20 lakhs

Rs. 2,90,000

Rs. 2,00,000

Rs. 90,000

0

Rs. 90,000

Rs. 2,00,000

24 lakhs

Rs. 4,10,000

Rs. 3,00,000

Rs. 1,10,000

0

Rs. 1,10,000

Rs. 3,00,000

50 lakhs

Rs. 11,90,000

Rs. 10,80,000

Rs. 1,10,000

0

Rs. 1,10,000

Rs. 10,80,000

 

What are example of rebate u/s 87A?

Here are the examples of section 87A of income tax act:

FY 2024-25) income source

Amount under old tax regime

Amount under new tax regime

Gross Total Income

Rs. 7 lakhs

Rs. 7.5 lakhs

Standard Deductions

Rs. 50,000

Rs. 75,000*

Section 80C Deductions

Rs. 1.5 lakhs

--

Total Taxable Income

Rs. 5 lakhs

Rs. 6.75 lakhs

Income Tax Payable

Rs. 12,500

Rs. 18,750

Section 87A Rebate

Rs. 12,500

Rs. 18,750

Tax payable

NIL

NIL

 

How to claim tax rebate under section 87A?

Claiming a tax rebate under section 87A is a straightforward process. It is crucial to accurately calculate the rebate amount and ensure compliance with the conditions specified under section 87A. Given below are the steps for the same:

  • Step 1: Calculate your gross total income for the previous financial year.
  • Step 2: Deduct all tax-saving investments and deductions claimed from the gross total income.
  • Step 3: This deduction leaves you with your gross total income after tax deductions, which is your taxable income for the financial year (or the previous year).
  • Step 4: Estimate your gross tax liability based on the gross total income, excluding any cess.
  • Step 5: Apply the 87A rebate to your gross tax liability before cess to determine your net tax liability.

Read More: Section 80D: Deductions for medical & health insurance

What is the Eligibility Criteria to Claim Income Tax Rebate under 87A for FY 2025–26 (AY 2026 – 27)?

To be eligible for a tax rebate under Section 87A of the Income Tax Act, you must meet these criteria:

  • You must be an individual who is a resident of India.
  • Your total taxable income (after deductions under Chapter VI-A, such as Section 80C and 80D) must not exceed Rs. 5 lakh under the old tax regime or Rs. 12 lakh under the new tax regime for FY 2025-26 (AY 2026-27).
  • The maximum rebate is Rs. 12,500 under the old tax regime and Rs. 60,000 under the new tax regime for FY 2025-26 (AY 2026-27).
  • If your calculated tax liability is less than the maximum rebate amount, your tax liability will be reduced to zero.
  • Senior citizens (aged 60-79) are eligible for this rebate.
  • Super senior citizens (aged 80 and above) are not eligible for this rebate.

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Example of tax rebate u/s 87A for FY 2025-26 (AY 2026-27)

Here is an example of US 87A rebate for FY 2024-25 (AY 2025-26):

Total Annual Income (Rs.)

Tax Payable before Cess

Rebate Under Section 87A

Tax Payable+4% Cess

Rs. 2.65 lakhs

Rs. 750

Rs. 750

0

Rs. 2.7 lakhs

Rs. 1,000

Rs. 1,000

0

Rs. 3 lakhs

Rs. 2,500

Rs. 2,500

0

Rs. 3.5 lakhs

Rs. 5,000

Rs. 2,500

Rs. 2,500 + cess**

 

What is the limit of rebate under Section 87A for previous financial years?

Financial year

Total income taxable limit

Rebate under Section 87A
2025-26 New Tax Regime: Rs. 12 lakhs Rs.
60,000

2024-25

New Tax Regime: Rs. 7 lakhs

Rs. 25,000

Old Tax Regime: Rs. 5 lakhs

Rs. 12,500

2023-24

New Tax Regime: Rs. 7 lakhs

Rs. 25,000

Old Tax Regime: Rs. 5 lakhs

Rs. 12,500

2022-23

Rs. 5 lakhs

Rs. 12,500

2021-2022

Rs. 5 lakhs

Rs. 12,500

2020-2021

Rs. 5 lakhs

Rs. 12,500

2019-2020

Rs. 5 lakhs

Rs. 12,500

2018-2019

Rs. 3.5 lakhs

Rs. 2,500

2017-2018

Rs. 3.5 lakhs

Rs. 2,500

2016-2017

Rs. 5 lakhs

Rs. 5,000

2015-2016

Rs. 5 lakhs

Rs. 2,000

2014-2015

Rs. 5 lakhs

Rs. 2,000

2013-2014

Rs. 5 lakhs

Rs. 2,000


Also read: 1940 TDS

Steps to claim rebate under section 87A rebate in ITR filing?

To claim a tax rebate under Section 87A for the Financial Year 2025-2026, follow these steps:

  • Step 1: Determine your Gross Total Income for the Financial Year 2025-2026.
  • Step 2: Subtract any tax deductions you are eligible for, such as those for life insurance policies, investments, and other tax-saving instruments.
  • Step 3: Calculate your total income after subtracting the tax deductions available under IT Act, 1961.
  • Step 4: Declare your Gross Income and tax deductions while filing your Income Tax Return (ITR).
  • Step 5: After filing your ITR, you can claim a tax rebate under Section 87A.

Things to remember while availing rebate under section 87A

Taxpayers claiming a rebate under section 87A must keep in mind the following points:

Compliance with tax laws:

Ensure compliance with all relevant tax laws and regulations while claiming the rebate. This includes filing your Income Tax Return (ITR) on time, accurately reporting income, and correctly applying for deductions. Non-compliance can lead to penalties, fines, or disqualification from receiving the rebate.

Accurate calculation:

Calculate the rebate amount diligently to avoid any discrepancies in tax filing. Any miscalculations or errors in determining your tax liability can result in discrepancies, potentially leading to delays or issues with your tax filing.

Keep documentation:

Maintain proper documentation of income, deductions, and tax payments for seamless filing and claim of rebate. This documentation will support your rebate claim, facilitate seamless ITR filing, and provide evidence in case of an audit or query from tax authorities.

Review eligibility:

Regularly review eligibility criteria and any changes in tax laws to maximise benefits. Staying informed about updates will help you maximise your tax benefits and ensure that you meet all requirements to claim the rebate effectively each financial year.

Rebate amount

  • Eligible amount: The rebate is applicable to the total income tax liability calculated before the addition of the 4% health and education cess.
  • Calculation: The rebate amount is determined as the lesser of:
    • The rebate limit specified under Section 87A of the Income Tax Act.
    • The total income tax payable (prior to cess calculation).

Applicable tax liabilities

The rebate may be claimed against tax liabilities arising from:

  • Income taxed at slab rates: Tax levied on normal income under applicable tax slabs.
  • Long-term capital gains: Tax on long-term capital gains as per Section 112 of the Income Tax Act, excluding gains from listed equity shares and equity-oriented mutual fund schemes.
  • Short-term capital gains: Tax on short-term capital gains from listed equity shares and equity-oriented mutual fund schemes under Section 111A, taxed at a flat rate of 15%.

Non-applicable tax liabilities

The rebate provided does not apply to the tax levied on long-term capital gains derived from investments in equity shares and equity-oriented mutual funds, as outlined in Section 112A of the Income Tax Act.

In conclusion, there is a significant tax relief under section 87A, particularly those with modest incomes. By reducing the tax burden on eligible individuals, this provision promotes tax compliance and financial inclusivity. Taxpayers are encouraged to leverage the benefits offered under section 87A by adhering to the prescribed criteria and procedures.

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Conclusion

The Section 87A tax rebate offers a valuable opportunity to reduce your tax liability. By understanding the eligibility criteria and maximizing deductions, you can potentially minimize your tax burden. Furthermore, investing in health insurance can provide significant tax benefits under Section 80D, further enhancing your tax savings. Don't miss out on these opportunities to optimize your finances and secure your future.

Frequently asked questions

Can the 87A rebate be claimed on agricultural income?

Yes, the income tax rebate under section 87A is applicable to taxable income, encompassing agricultural incomes as well.

What is the 87A limit in 2024?

Section 87A of the Income Tax Act, 1961, offers a tax rebate for resident individuals with taxable income below a specific threshold. For the fiscal year 2024-25 (AY 2025-26), the rebate limit remains unchanged, continuing at up to Rs. 7 lakh under the new tax regime.

Are NRIs eligible to claim a rebate under section 87A?

Rebate under section 87A is only applicable for Indian citizens and not for NRIs.

Who is eligible for an 87A rebate?

Resident individuals in India with a total taxable income of up to Rs. 7 lakh under the new tax regime or up to Rs. 5 lakh under the old regime are eligible for the Section 87A rebate, reducing their tax liability.

How is section 87A rebate calculated?

The Section 87A rebate is calculated by reducing the tax liability for eligible individuals. Under the new tax regime, the maximum rebate is Rs. 25,000, while under the old regime, it is Rs. 12,500, based on the taxable income limit.

What is the 87A rebate for FY 2024-25?

For FY 2024-25, the maximum amount eligible for the 87A rebate is Rs. 12,500 for old tax regime and Rs. 25,000 for new tax regime. This rebate is available to individuals who invest in eligible savings and investment schemes.

What is the 87A rebate in budget 2025?

For FY 2025-26 (AY 2026-27), the 87A rebate under the new tax regime allows resident individuals with taxable income up to Rs. 12 lakh to reduce their tax liability to zero. The maximum rebate amount is Rs. 60,000. Under the old tax regime, the rebate remains at Rs. 12,500 for individuals with taxable income up to Rs. 5 lakh.

Is 87A rebate against capital gains?

The 87A rebate applies to the total income tax payable, which includes tax calculated on capital gains. So, yes, the rebate can offset the tax liability arising from capital gains income, provided the individual's total taxable income (including capital gains) is within the specified limit.

What is the clarification of the 87A rebate?

The 87A rebate clarifies the amount of tax relief available to resident individuals based on their income level. It is designed to provide tax relief to lower-income taxpayers. For 2025-26, the clarification emphasizes the increased rebate limit for the new tax regime. It also highlights the fact that while the rebate can reduce the tax payable on total income, it doesn't apply to income taxed under special rates.

Is Section 87A available for senior citizens?

Senior citizens (individuals aged 60 to 79) are eligible to claim the 87A rebate, provided they meet the income and residency requirements. However, super senior citizens (aged 80 and above) are not eligible for this rebate.

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