What is the Tax Rebate Under Section 87A of Income Tax Act?

The Income Tax Act of 1961 offers several provisions that provide tax relief to individuals to lower their tax liabilities. One such provision is Section 87A of the Income Tax Act. Individuals can enjoy a tax rebate under Section 87A when they earn a net taxable income up to the specified amount as fixed under both the old and new tax regimes. 

This rebate serves as a huge tax relief, especially for salaried taxpayers. If you are curious to know more about this section, keep reading!

The Union Budget 2025 proposed changes in the limit of income tax rebate under Section 87A for the new tax regime, which will reduce the tax liabilities of taxpayers.

For FY 2025-26 (AY 2026-27), the budget raised the rebate allowed for individuals under the new tax regime to ₹60,000. Earlier, this limit was ₹25,000. However, this rebate is not applicable for income taxed at special rates (e.g., capital gains under section 112A).

For the old tax regime, the amount is the same as in the previous financial year, which is ₹12,500.

This means that this budget increased the NIL tax limit up to an income of ₹12 lakh, implying that taxpayers will not have to pay any tax under the new tax regime up to this income. For FY 2024-25, the limit was ₹7 lakh. 

The recent Union Budget of 2022 has not altered the provision of availing a tax rebate under Section 87A.

Individuals need to meet the eligibility criteria to avail tax rebate under Section 87A:

• The taxpayer needs to be an Indian citizen.

• An individual’s net taxable income must not be above ₹ 5,00,000 after deduction under Section 80D, 80C, etc., as specified under Chapter VI-A.

• Individuals (aged less than 60 years), senior Indian residents aged more than 60 years but less than 80 years can claim a tax rebate under this Section.

• Super senior Indian residents aged more than 80 years do not qualify to claim a tax rebate under this Section.

• From Assessment year 2024-25, a maximum rebate of Rs. 25,000 is allowed under section 87A, If the total income of a resident individual, who is opting for the new tax scheme under Section 115BAC(1A), is up to ₹7,00,000.

Besides, before adding 4% of health and education cess, this tax rebate applies to the total tax payable in a given assessment year.

Individuals can avail a tax rebate against the following tax liabilities under Section 87A:

• Individuals can claim a tax rebate under this Section on their income taxable according to the income tax slab rate.
• Assessee can claim a tax rebate on the following capital gains:
• Long-term capital gains as specified under Section 112 - This applies when an individual sells a capital asset other than an equity-oriented mutual fund scheme or listed equity shares. Individuals must note that they cannot adjust tax payable on LTCG on equity-oriented mutual fund schemes and equity shares.
• Short-term capital gains as specified under Section 111A - This applies to equity-oriented mutual fund schemes and listed equity shares. The short-term capital gain is taxed at a flat rate of 15%.

Besides knowing what the tax rebate under Section 87A is and its eligibility parameters, individuals need to learn the procedures to enjoy a tax rebate under this Section.

So, take a look at the following process:

Step 1: Individuals need to evaluate their gross annual income.

Step 2: Subtract the tax deductions claimed against tax savings investments to obtain the net taxable income. 

Step 3: Mention the tax deductions and gross income while filing Income Tax Returns. 

Step 4: If individuals’ total earnings in a given financial year are below ₹5,00,000 (under old regime) or below ₹12,00,000 (under new regime) for FY 2025-26, they can claim a tax rebate under Section 87A.

Here are some important things to consider about the rebate under Section 87A for FY 2025-26:

Eligibility:

Only individual residents of India who have opted for the new tax regime can avail of this rebate. It doesn't apply to NRIs or HUF and firms.

Income Limit:

You can get the rebate only if your total income is up to ₹12 lakh under the new tax regime.

Special Income:

Income taxed at special rates, like certain capital gains, doesn't qualify for this rebate.

Marginal Relief:

If your income is slightly over ₹12 lakh, you get marginal relief on the total tax, under this rebate.

Compliance With Tax Laws:

Ensure to comply with all relevant tax laws and regulations while claiming this rebate, such as filing ITR on time, reporting correct income, and correctly applying for deductions. 

Proper Documentation:

Maintain a record of your income, deductions, and tax payments to file and claim rebate easily.