Income Tax Rebate Under Section 87A

Rebate is a tax reduction available to resident individuals when they earn income within a certain ceiling limit. Section 87A provides tax relief to resident individuals falling under lower income brackets. For FY 2024-25, Rs. 25,000 rebate is allowed for income within 7 lakhs under the new regime and Rs. 12,500 is allowed for income within 5 lakhs under the old regime. For FY 2025-26, rebate of Rs. 60,000 is allowed under the new regime for an income up to Rs. 12 lakhs.

The rebate limit for FY 2025-26 (effective from 1st April 2025) has been increased from Rs. 25,000 to Rs. 60,000. As a result, the marginal relief, which was earlier applicable to income slightly above Rs. 7,00,000, will now be available for income exceeding just over Rs. 12,00,000.

What is Rebate u/s 87A?

• Generally, tax rebate can be considered as a tax reduction or rather a tax credit available to resident individuals when they fall under lower income groups. 
• The rebate can be applied to the total tax before adding a health and education cess of 4%
• Applying rebate can make your tax liability to zero.

Eligibility Criteria for Rebate

• Only resident individuals are eligible to avail rebate under this section.
• Rebate under Section 87A is available to taxpayers whose income does not exceed:
  • Rs. 7 lakh under the new tax regime and 
  • Rs. 5 lakh under the old regime.
• The amount of rebate will be lower than the limit specified under Section 87A or total income tax payable (before cess).
• Rebate under Section 87A cannot be adjusted against tax on long-term capital gains under section 112A.
• From FY 2025-26 Rebate will not be applicable on special rates under income tax.

How Much is the Rebate Allowed u/s 87A?

New Regime

• For FY 2024-25, if an individual's total taxable income is up to Rs.7 lakh, he will be eligible for rebate up to Rs.25,000. 
• However, for FY 2025-26, if an individual's total taxable income is up to Rs.12 lakh, he will be eligible for rebate up to Rs.60,000. 
• But the rebate allowed shall not exceed the total tax payable before cess in any case.

Old Regime

• A resident individual is having a total taxable income of less than Rs 5 Lakh, up to Rs. 12,500 rebate can be availed.
• But the rebate allowed shall not exceed the total tax payable before cess in any case.

Marginal Relief in New Tax Regime

Marginal Relief on Rebate - FY 2024-25

• If the income of an individual slightly exceeds Rs 7,00,000, and tax is more than the income exceeding Rs.700,000, then the tax will be limited to the income exceeding Rs. 7 lakhs.
• In simple words, when the extra tax is greater than extra income above Rs. 7 lakhs, the tax payer is only required to pay excess income above Rs. 7 lakh.
• This is called marginal relief allowed on rebate.
• The steps to calculate the marginal relief on rebate is given below

Step 1: Calculate excess above Rs. 7 lakhs Total income – Rs 7 Lakh (A)

Step 2: Compute income-tax liability on total income (B)

Step 3: if B>A rebate under section 87A would be  (B-A).

Let’s try to understand this with the below example

Mr. Ravi, 36, a resident of India, has a total income of Rs 7,15,000, comprising his salary and interest on bank fixed deposits. Under the new tax regime, his tax liability for AY 2025-26 is as follows.

Solution : 

Marginal Relief on Rebate - FY 2025-26

The benefit of marginal relief on rebate for different income groups for FY 2025-2026 is explained below:

Steps to Claim a Tax Rebate Under Section 87A

Step 1: Calculate your gross total income for the financial year

Step 2: Reduce your tax deductions for tax savings, investments, etc.

Step 3: Arrive at your total taxable income after reducing the tax deductions.

Step 4: Declare your gross income and tax deductions in ITR.

Step 5: Claim a tax rebate under section 87A if your total income does not exceed specified limits.

See the example below for rebate calculation under Section 87A. 

Under the new tax regime, for individuals below 60 years of age for AY 2025 -26

* Deduction under section 80C is not eligible for the taxpayer who pays tax under the new tax regime .

Under the old tax regime, For individuals below 60 years of age for AY 2025-26 

Rebate Against Various Tax Liabilities

Section 87A rebate can be claimed against tax liabilities on:

• Normal income which is taxed at the slab rate
• Long-term capital gains under Section 112 of the Income Tax Act. (Section 112 applies for long-term capital gains on the sale of any capital assets other than listed equity shares as well as equity-oriented schemes of mutual funds)
• Short-term capital gains on listed equity shares and equity-oriented schemes of mutual funds under Section 111A of the Act, on which tax is payable at a flat rate of 15%.

Rebate Limit Under Section 87A for the Different Financial Years