How Much Rebate Can I Claim Under Section 87A? Check for for FY 2024-25 and FY 2025-26

Section 87A of the Income Tax Act, 1961, provides taxpayers in India with a valuable rebate that can significantly reduce their income tax liability. The amount of rebate available depends on various factors, including your income level and the tax regime you are following—old or new. Understanding the specifics of this rebate can help you maximize your tax savings and minimize your liability. Let us understand how much rebate you can claim under Section 87A, detailing the thresholds, calculations, and key points to remember for the financial years (FY) 2024-25 and 2025-26.

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Table of Contents

• How Much Rebate Can I Claim Under Section 87A?

• Is the Rebate Allowed in the New Tax Regime?

• How the Rebate Works in the New Tax Regime

• How the Rebate Works in the Old Tax Regime

• Important Calculations and Details for Section 87A

• Step-by-Step Guide to Claiming Your Section 87A Rebate

• Summary Table of Rebate Limits and Income Thresholds

• Additional Notes and Considerations

• Conclusion

• FAQs

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How Much Rebate Can I Claim Under Section 87A?

Under Section 87A, the maximum rebate you can claim is ₹25,000 for FY 2024-25 under the new tax regime, applicable for incomes up to ₹7 lakh. For FY 2025-26, this rebate increases to ₹60,000 for incomes up to ₹12 lakh. In the old tax regime, the maximum rebate is ₹12,500, applicable for incomes up to ₹5 lakh in both FY 2024-25 and FY 2025-26.

Is the Rebate Allowed in the New Tax Regime?

Yes, the rebate under Section 87A is available in the new tax regime. The key benefit of the new regime is that it allows individuals with taxable income up to certain thresholds to reduce their tax liability by claiming this rebate. However, the eligibility and rebate amount differ between the financial years (FY) 2024-25 and 2025-26.

How the Rebate Works in the New Tax Regime

In the new tax regime, the rebate under Section 87A directly reduces your tax liability, making it a valuable tool for taxpayers with lower taxable income. The key features of this rebate are:

• The rebate amount is applied to the total tax liability before any additional charges, such as health and education cess (4%).

• The maximum rebate amount and income thresholds for claiming the rebate vary across financial years, with an increase in both in FY 2025-26 compared to FY 2024-25.

• If your income exceeds the rebate threshold, you will not be eligible for the full rebate amount, and the excess income will be taxed as per the applicable tax slabs.

Income Threshold and Maximum Rebate for FY 2024-25

1. Income Threshold: In FY 2024-25, the new tax regime offers a rebate to individuals whose taxable income is up to ₹7,00,000.

   
   

2. Maximum Rebate: The maximum rebate available is ₹25,000, which means if your taxable income is ₹7,00,000 or less, you can reduce your tax liability to zero by claiming this rebate.

   
   

3. Rebate Application: If your taxable income exceeds ₹7 lakh, marginal relief is applicable to ensure the tax liability doesn't increase disproportionately for income just above ₹7 lakh.

   
   

Income Threshold and Maximum Rebate for FY 2025-26

1. Income Threshold: For FY 2025-26, the income threshold for the rebate in the new tax regime has increased to ₹12,00,000.

   
   

2. Maximum Rebate: The maximum rebate amount has also been raised to ₹60,000. This means that if your taxable income is ₹12 lakh or less, you can reduce your tax liability to zero after applying the rebate.

   
   

3. Rebate Applicability: The rebate is not available on income subject to special tax rates, such as long-term capital gains under Section 112A.

   
   

Rebate Application Process in the New Tax Regime

The process of applying for the rebate under Section 87A in the new tax regime involves the following steps:

1. Determine Taxable Income: Start by calculating your gross income and then apply eligible deductions under Sections like 80C, 80D, etc., to arrive at your taxable income.

2. Check Rebate Eligibility: Ensure your taxable income falls below the threshold (₹7 lakh for FY 2024-25, ₹12 lakh for FY 2025-26) to claim the rebate.

3. Calculate Tax Liability: Compute the total tax liability based on the applicable tax slabs for the new regime.

4. Apply Rebate: Subtract the applicable rebate amount (up to ₹25,000 for FY 2024-25, ₹60,000 for FY 2025-26) from your total tax liability to reduce it.

5. File Your ITR: Declare your income, deductions, and rebate in your Income Tax Return (ITR) to claim the rebate.

   
   

How the Rebate Works in the Old Tax Regime

In the old tax regime, the rebate under Section 87A also helps reduce your tax liability, but the eligibility and amounts differ from those under the new regime.

Income Threshold and Maximum Rebate for FY 2024-25

1. Income Threshold: For FY 2024-25, the rebate under Section 87A in the old tax regime is available for individuals with taxable income up to ₹5,00,000.

2. Maximum Rebate: The maximum rebate amount is ₹12,500, meaning individuals whose taxable income is ₹5 lakh or below can reduce their tax liability to zero by claiming this rebate.

   
   

Income Threshold and Maximum Rebate for FY 2025-26

1. Income Threshold: For FY 2025-26, the income threshold for claiming the rebate under the old tax regime remains at ₹5,00,000.

2. Maximum Rebate: The rebate amount remains at ₹12,500 for individuals falling within this income range.

3. Rebate Application: As with FY 2024-25, the rebate is subtracted from the total tax liability to reduce it to zero for taxpayers earning ₹5 lakh or less.

   
   

Important Calculations and Details for Section 87A

Eligibility and Income Threshold

The eligibility for Section 87A depends on your taxable income. You are eligible for the rebate if your taxable income falls within the specified income thresholds for the relevant financial year. The thresholds differ between the old and new tax regimes, and they also vary from FY 2024-25 to FY 2025-26.

• In the new tax regime, the rebate applies if your taxable income is ₹7,00,000 (for FY 2024-25) or ₹12,00,000 (for FY 2025-26) or less.

• In the old tax regime, the rebate applies for taxable income of ₹5,00,000 or less in both FY 2024-25 and FY 2025-26.

Rebate Calculation Process

To calculate the rebate under Section 87A:

• Determine your taxable income after applying eligible deductions.

• Verify if your taxable income is below the income threshold for the respective tax regime.

• Calculate the tax liability as per the applicable income tax slabs.

• Subtract the rebate amount from your total tax liability to reduce it.

Marginal Relief and Taxable Income Exceeding the Threshold

In the new tax regime, if your taxable income exceeds the rebate threshold (₹7 lakh for FY 2024-25 or ₹12 lakh for FY 2025-26), marginal relief applies. This ensures that individuals whose income is slightly above the threshold do not face an unreasonably high tax liability.

• Marginal relief is calculated as the difference between your tax liability and the excess income above the threshold. This keeps the tax liability closer to what it would have been if your income was exactly at the threshold.

Step-by-Step Guide to Claiming Your Section 87A Rebate

Claiming your Section 87A rebate is a straightforward process, but it requires a few critical steps to ensure that you qualify and apply it correctly. Here’s a step-by-step guide to help you claim your rebate:

1. Determine Your Gross Income: Start by calculating your gross income for the financial year, including salary, income from business or profession, and any other sources of income.

2. Apply Eligible Deductions: Deduct eligible tax-saving investments and exemptions (such as those under Sections 80C, 80D, etc.) from your gross income to arrive at your taxable income.

3. Check Your Eligibility: Ensure your taxable income is within the rebate threshold for the relevant financial year:

4. ₹7 lakh for FY 2024-25 (New Tax Regime)

5. ₹12 lakh for FY 2025-26 (New Tax Regime)

6. ₹5 lakh for both FY 2024-25 and FY 2025-26 (Old Tax Regime)

7. Calculate Tax Liability: Based on the applicable tax slabs, compute your tax liability.

8. Apply the Rebate: If your taxable income falls within the specified thresholds, apply the rebate:

9. ₹25,000 for FY 2024-25 (New Tax Regime)

10. ₹60,000 for FY 2025-26 (New Tax Regime)

11. ₹12,500 for both FY 2024-25 and FY 2025-26 (Old Tax Regime)

12. File Your ITR: Submit your Income Tax Return (ITR) by declaring your income, deductions, and rebate, and ensure all details are accurately filled.

13. Complete the Process: After filing your ITR, make sure you complete the e-verification process to finalize the claim.

    
    

Summary Table of Rebate Limits and Income Thresholds

Financial Year	Tax Regime	Income Threshold for Rebate	Maximum Rebate Amount
FY 2024-25	New Tax Regime	₹7,00,000	₹25,000
FY 2024-25	Old Tax Regime	₹5,00,000	₹12,500
FY 2025-26	New Tax Regime	₹12,00,000	₹60,000
FY 2025-26	Old Tax Regime	₹5,00,000	₹12,500

Additional Notes and Considerations

1. Rebate Eligibility: The Section 87A rebate is available only to resident individuals. Non-residents or Hindu Undivided Families (HUFs) are not eligible for this rebate.

   
   

2. Marginal Relief: If your income exceeds the rebate threshold (₹7 lakh for FY 2024-25 or ₹12 lakh for FY 2025-26), you may still qualify for marginal relief, which ensures that your tax liability does not increase disproportionately.

   
   

3. Tax on Special Incomes: The rebate cannot be claimed against income that is taxed at special rates, such as long-term capital gains under Section 112A.

   
   

4. Health and Education Cess: The rebate is applied before adding the health and education cess (4%), which is charged on the tax payable after applying the rebate.

   
   

5. Income Above Threshold: If your income exceeds the specified threshold, you will not be eligible for the rebate, and the income exceeding the threshold will be taxed as per the applicable tax slab rates.

   
   

6. Impact of Budget Changes: The income thresholds and rebate limits under Section 87A are subject to change based on the Union Budget announcements. Always check the latest budget for updated limits.

   
   

Conclusion

The rebate under Section 87A is a valuable tool for taxpayers in India, allowing individuals to significantly reduce their tax liability, especially if their income is within the specified thresholds. Both the old and new tax regimes offer this rebate, though the income limits and maximum amounts differ. It is important to understand the applicable thresholds and follow the correct process for claiming the rebate. By doing so, individuals can save on taxes and file their returns more effectively, taking full advantage of the available rebates.

FAQs

Q1. Who is eligible for Section 87A rebate?

Section 87A rebate is available to resident individuals whose taxable income falls below the specified income thresholds for the relevant financial year. The income thresholds differ between the old and new tax regimes and also vary by financial year.

• In the new tax regime:

• For FY 2024-25, the income threshold is ₹7 lakh.

• For FY 2025-26, the income threshold is ₹12 lakh.

• In the old tax regime, the income threshold for both FY 2024-25 and FY 2025-26 is ₹5 lakh.

Non-resident individuals and Hindu Undivided Families (HUFs) are not eligible for the rebate.

Q2. Can I claim Section 87A rebate under the new tax regime if my income exceeds ₹7 lakh?

No, you cannot claim the Section 87A rebate if your taxable income exceeds ₹7 lakh in FY 2024-25 or ₹12 lakh in FY 2025-26 under the new tax regime. If your income is slightly above the threshold, you might be eligible for marginal relief, which ensures that the tax liability does not increase disproportionately.

Q3. Is the Section 87A rebate applicable to salaried individuals only?

No, the Section 87A rebate is not limited to salaried individuals. It is available to all resident individuals, regardless of their income source. This includes individuals earning income from salary, business, profession, or any other source, provided their taxable income is below the prescribed thresholds for the relevant financial year.

Q4. What happens if my taxable income is slightly above the threshold for the rebate?

If your taxable income is just above the income threshold (₹7 lakh for FY 2024-25 or ₹12 lakh for FY 2025-26), you may be eligible for marginal relief. Marginal relief is designed to ensure that individuals whose income slightly exceeds the threshold are not burdened with an excessively high tax liability. The relief is calculated as the difference between your tax liability and the excess income above the threshold.

Q5. Can I claim the Section 87A rebate for income from long-term capital gains?

No, the Section 87A rebate cannot be claimed against income from long-term capital gains that is taxed under Section 112A. This includes gains from equity shares and equity-oriented mutual funds that are taxed at special rates. The rebate under Section 87A is only applicable to income taxed under the regular income tax slabs.

Q6. Does the Section 87A rebate apply to non-residents?

No, the Section 87A rebate is only available to resident individuals. Non-resident individuals are not eligible for this rebate, even if their taxable income is below the specified threshold.

Q7. How does marginal relief work under Section 87A?

Marginal relief ensures that individuals whose taxable income is slightly above the rebate threshold are not taxed disproportionately. If your income exceeds the threshold, the excess income is subject to tax, but marginal relief reduces the additional tax payable. The relief amount is calculated as the difference between the tax liability and the excess income above the threshold, ensuring that your overall tax burden is not excessively high.

Q8. What is the maximum rebate I can claim under Section 87A in FY 2025-26?

In FY 2025-26, under the new tax regime, you can claim a maximum rebate of ₹60,000 if your taxable income is ₹12 lakh or below. In the old tax regime, the maximum rebate remains at ₹12,500 for individuals whose taxable income is ₹5 lakh or less.

Q9. Do I need to file my Income Tax Return to claim the Section 87A rebate?

Yes, to claim the Section 87A rebate, you must file your Income Tax Return (ITR). You need to declare your total income, eligible deductions, and the rebate amount in the ITR form. The rebate will be applied to reduce your tax liability after the calculation of your taxable income and tax due as per the applicable tax slabs.

Q10. What is the difference in the rebate amount between the old and new tax regimes?

The main difference between the old and new tax regimes lies in the income threshold and the maximum rebate amount:

• Under the new tax regime:

• For FY 2024-25, the income threshold is ₹7 lakh, and the maximum rebate is ₹25,000.

• For FY 2025-26, the income threshold increases to ₹12 lakh, and the maximum rebate increases to ₹60,000.

• Under the old tax regime:

• For both FY 2024-25 and FY 2025-26, the income threshold remains at ₹5 lakh, and the maximum rebate is ₹12,500.

Q11. Can I claim both the Section 87A rebate and other deductions like 80C?

Yes, you can claim both the Section 87A rebate and other tax-saving deductions like those under Section 80C (for example, contributions to Provident Fund or Life Insurance premiums). However, the Section 87A rebate is applied after calculating your taxable income based on your deductions. This means that the rebate is an additional benefit that reduces your tax liability after other eligible deductions have been applied.

Q12. How does the Section 87A rebate impact the health and education cess?

The Section 87A rebate is applied before the addition of the health and education cess, which is 4% of your total tax liability. After applying the rebate, the cess will be charged on the remaining tax amount. Therefore, the rebate reduces your overall tax liability, and the cess is calculated on the reduced amount.