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!

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Changes in Tax Rebate Under Budget 2025
Eligibility Criteria
Tax Liabilities Against Which to Claim Rebate
Procedure to Claim & How to Calculate Tax Rebate
Marginal Relief & Maximum Limit of Rebate
Frequently Asked Questions

What are the Changes in Tax Rebate Under Budget 2025?

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.

What Are the Eligibility Criteria to Avail Tax Rebate Under Section 87A?

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.

Tax Liabilities Against Which Individuals Can Claim Rebate Under Section 87A

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%.

Steps to Claim Tax Rebate Under Section 87A

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.

How to Calculate Tax Rebate Under Section 87A of the ITA?

To streamline this process of claiming rebate under Section 87A, take a look at a simple example:

Particulars	Old Tax Regime	New Tax Regime
Gross Total Income	₹7,00,000	₹12,75,000
Standard Deductions	₹50,000	₹75,000
Section 80C Deductions	₹1,50,000	--
Total Taxable Income	₹5,00,000	₹12,00,000
Income Tax Payable	₹12,500	₹60,000
Section 87A Rebate	₹12,500	₹60,000
Tax Payable (without cess)	NIL	NIL

*Besides 80C, individuals can also claim deduction under Section 80D against investing in medical insurance and under Section 80CCD when investing in NPS. At the same time, they can also enjoy tax deductions under Section 80G against eligible donations along with other deductions.

What is Marginal Relief on Rebate?

If the income of an individual exceeds ₹12 lakh by a small margin and tax payable on such income is exceeding this income limit, then as per the benefit of marginal relief under Section 87A, taxpayers whose income exceeds ₹12 lakh do not have to pay significantly more tax.

Marginal relief is applicable to incomes up to ₹12.75 lakh, after which normal tax rates apply, as per the IT slabs. Here’s how:

Total Income (₹)	Tax Without Marginal Relief (₹)	Tax With Marginal Relief (₹)
₹12,00,000	₹60,000	₹0
₹12,10,000	₹61,500	₹10,000
₹12,50,000	₹67,500	₹50,000
₹12,70,000	₹70,500	₹70,000
₹12,75,000	₹71,250	₹71,250

What is the Maximum Tax Rebate Limit from FY 2020-21 to FY 2025-26?

Take a look at the following table illustrating the maximum income tax rebate limit under Section 87A for new income tax regime, along with the net taxable income in each financial year:

Note that the rebate under the old tax regime is the same for the given financial years, i.e. ₹12,500 for an income up to ₹5,00,000.

Financial Year	Net Taxable Income	Tax Rebate Limit under Section 87A for New Tax Regime
2025-2026	₹12,00,000	₹60,000
2024-2025	₹7,00,000	₹25,000
2023-2024	₹7,00,000	₹25,000
2022-2023	₹5,00,000	₹12,500
2021-2022	₹5,00,000	₹12,500
2020-2021	₹5,00,000	₹12,500

Thus, going through these pointers mentioned above will simplify the process of availing a tax rebate under Section 87A and reduce the tax burden.

Considerations Before 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.

FAQs about Rebate Under Section 87A

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Are HUFs and firms eligible to claim a tax rebate under Section 87A?

No, only individual taxpayers can claim tax rebates under Section 87A.

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

No, this rebate is only allowed for Indian resident individuals. Therefore, taxpayers qualifying as non-residents are not eligible for a rebate under 87A.

Is Section 87A applicable under both old and new tax regimes?

Yes, Section 87A is valid under both old and new tax regimes.

Is surcharge levied while computing tax rebate under Section 87A?

No, an individual claiming tax rebate under Section 87A must earn a net taxable income up to ₹5 lakhs under old regime or below ₹12 lakh for new regime in FY 2025-26, and the surcharge is applicable when he or she earns an income above ₹50 lakhs but below ₹1 crore.

How to calculate rebate under Section 87A?

Section 87A rebate is calculated by subtracting the rebate amount from the tax liability for eligible individuals. Under the new tax regime, the maximum rebate is ₹60,000, while under the old regime, it is ₹12,500, based on the taxable income limit.

Is income tax rebate u/s 87A available on LTCG?

Yes, rebate u/s 87A is available on sale of long-term capital assets, but it is not applicable on Long Term Capital Gains from equity or others as specified under section 112A.

Can I claim 87A rebate on agricultural income?

Yes, you can as the income tax rebate under section 87A is applicable to agricultural income as well.

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

For FY 2024-25, the maximum amount eligible for the 87A rebate was ₹12,500 for the old tax regime and ₹25,000 for new tax regime.

If my taxable income is above 5 lakhs, can I still get the rebate?

No, if your taxable income exceeds 5 lakhs, you cannot avail of the rebate under Section 87A for the old tax regime. The rebate is available only if your income is up to Rs. 5 lakh in the old regime or Rs. 7 lakh in the new tax regime. You can reduce your tax liability to zero if your income is within these limits. Consider using an income tax calculator to determine your eligibility.