Income Tax Slab Rates After Section 87A Rebate for FY 2025-26 (AY 2026-27)
- Rashmita Choudhary
- Apr 22
- 12 min read
Updated: Apr 29
The Union Budget 2025 introduced changes to income tax slabs and Section 87A rebate that bring new benefits for taxpayers. Under the updated slabs for FY 2025-26, individuals with taxable income up to Rs. 12 lakh will pay no income tax due to the enhanced Section 87A rebate. This is a significant relief, especially for those in the middle-income range.
We will take a closer look at how the new tax slabs work, how the Section 87A rebate impacts tax calculations, and the differences between the old and new tax regimes. With examples and a clear breakdown, you will understand how these changes can reduce your tax burden.
Table of content
Income Tax Slab Rates After Section 87A Rebate
The Section 87A rebate significantly reduces the tax liability for individuals with taxable income up to Rs. 12 lakh. Under the new tax regime, taxpayers earning up to this amount will pay no tax, as the rebate covers the entire tax amount, up to Rs. 60,000. For example, if your tax before the rebate is Rs. 60,000, the Section 87A rebate will eliminate it entirely, making your final tax payable zero. This makes the new tax regime especially beneficial for middle-income earners. However, in the old tax regime, the rebate is capped at Rs. 12,500, and it only applies to those with taxable income up to Rs. 5 lakh. Understanding how the rebate works with the different tax slabs can help you make more informed decisions when filing your returns.
Overview of Income Tax Slabs for FY 2025-26
The Union Budget 2025 introduced revised income tax slabs for the new tax regime, which will apply from April 1, 2025. These changes aim to provide more relief to taxpayers and simplify the overall tax structure. Under the new regime, income up to Rs. 4 lakh is tax-free, and the tax rates gradually increase based on income brackets. Here is a breakdown of the updated slabs:
Income Range (Rs) | Tax Rate |
Up to 4,00,000 | Nil |
4,00,001 to 8,00,000 | 5% |
8,00,001 to 12,00,000 | 10% |
12,00,001 to 16,00,000 | 15% |
16,00,001 to 20,00,000 | 20% |
20,00,001 to 24,00,000 | 25% |
Above 24,00,000 | 30% |
These changes simplify the tax structure, with a significant reduction in the tax burden for individuals earning up to Rs. 12 lakh, as the first Rs. 4 lakh is completely exempt from tax.
How Section 87A Rebate Affects Taxable Income
Section 87A is a rebate that reduces the income tax liability of taxpayers, which can be a significant relief, especially for those in the lower income brackets. Under the new tax regime for FY 2025-26, this rebate applies to individuals with taxable income up to Rs. 12 lakh. The rebate allows taxpayers to deduct up to Rs. 60,000 from their total tax liability, effectively reducing their payable tax to zero for those in this income range.
The rebate is calculated on the income tax before adding the 4% health and education cess. It is applied only to the tax amount, not the taxable income itself, and is the lower of the tax payable or the maximum rebate limit of Rs. 60,000. If the tax calculated is less than the rebate, the entire tax liability becomes zero.
Section 87A Rebate: Key Changes for FY 2025-26
For FY 2025-26, significant changes have been made to the Section 87A rebate. The key changes are:
Rebate Limit Increase: The maximum rebate under Section 87A has increased from Rs. 25,000 to Rs. 60,000. This means taxpayers can now save more on their taxes.
Eligibility Threshold: The eligibility for the rebate has been raised from Rs. 7 lakh to Rs. 12 lakh of taxable income. This expands the number of taxpayers who can benefit from the rebate.
In comparison, under the old tax regime, the rebate remains at Rs. 12,500 for taxpayers with taxable income up to Rs. 5 lakh. The conditions for claiming the rebate under the old regime remain unchanged.
These changes are designed to provide more substantial tax relief, especially for middle-income earners, by increasing both the rebate limit and the income threshold for eligibility.
Is Section 87A Rebate Allowed in New Tax Regime?
Yes, Section 87A rebate is available under the new tax regime for FY 2025-26. Taxpayers with taxable income up to Rs. 12 lakh can claim the rebate, reducing their overall tax liability to zero, provided the tax calculated is equal to or less than the rebate limit of Rs. 60,000.
However, it’s important to note that this rebate is not available to taxpayers in the old regime who have chosen to claim deductions under sections like 80C, 80D, etc. Therefore, taxpayers must choose between the old and new tax regimes, as the rebate is only applicable in the new tax regime.
How Section 87A Rebate Works in the Old Tax Regime
Under the old tax regime, Section 87A offers a tax rebate to resident individual taxpayers. The rebate reduces the amount of tax payable, provided the taxpayer’s income meets certain conditions. In the old regime, the rebate is applied after calculating the income tax based on the applicable slabs.
Eligibility: The rebate is available only to individuals with a taxable income of Rs. 5 lakh or less. If the income exceeds this limit, the rebate cannot be claimed.
Tax Impact: The maximum rebate under Section 87A is Rs. 12,500. This means that if the total tax payable is less than or equal to Rs. 12,500, the taxpayer doesn’t need to pay any tax. If the tax payable is more than Rs. 12,500, the rebate is limited to Rs. 12,500.
For example, if a person has a taxable income of Rs. 5 lakh, the tax before rebate would be Rs. 12,500 (5% of Rs. 2.5 lakh), and after applying the rebate, the tax payable becomes zero.
Eligibility Criteria for Section 87A Rebate
Section 87A rebate is available only to resident individuals. The eligibility conditions and income levels vary slightly depending on the tax regime:
Income Level for Rebate: For the old regime, individuals with taxable income of Rs. 5 lakh or less are eligible for the rebate.
Rebate Limit: The maximum rebate under this section is Rs. 12,500.
Age Criteria: The rebate is available to individuals under 60 years of age. Senior citizens (aged between 60 and 80 years) and super senior citizens (above 80 years) are not eligible for the Section 87A rebate under the old regime.
Income Types: The rebate applies only to income that is taxed under the normal income tax slabs, excluding income from sources that are taxed at special rates (e.g., long-term capital gains).
Example Calculation of Taxable Income After Section 87A Rebate
Let's look at practical examples to understand the rebate's impact under both the old and new tax regimes.
Old Tax Regime (Taxable Income: Rs. 5,00,000)
Tax Before Rebate:
Income up to Rs. 2.5 lakh: Nil
Rs. 2.5 lakh to Rs. 5 lakh (2.5 lakh at 5%): Rs. 12,500
Total tax = Rs. 12,500
Rebate:
Section 87A rebate = Rs. 12,500
Tax Payable After Rebate:
Rs. 12,500 (tax) – Rs. 12,500 (rebate) = Rs. 0
So, the individual pays no tax after applying the rebate.
New Tax Regime (Taxable Income: Rs. 12,00,000)
Tax Before Rebate:
Income up to Rs. 4 lakh: Nil
Rs. 4 lakh to Rs. 8 lakh (4 lakh at 5%): Rs. 20,000
Rs. 8 lakh to Rs. 12 lakh (4 lakh at 10%): Rs. 40,000
Total tax = Rs. 60,000
Rebate:
Section 87A rebate = Rs. 60,000 (Maximum rebate under the new regime)
Tax Payable After Rebate:
Rs. 60,000 (tax) – Rs. 60,000 (rebate) = Rs. 0
Under the new tax regime, the individual also pays no tax, thanks to the enhanced Section 87A rebate.
How to Calculate Your Tax Payable After Section 87A Rebate
Here’s a step-by-step guide to help you calculate the tax payable after applying Section 87A rebate under both the old and new tax regimes:
Determine Your Taxable Income:
Start by calculating your total taxable income after considering all deductions and exemptions.
Apply the Applicable Tax Slabs:
For the old tax regime, apply the relevant tax slabs to calculate the income tax based on your taxable income.
For the new tax regime, apply the updated tax slabs for FY 2025-26 (which are different from the old regime).
Check Eligibility for Section 87A Rebate:
If your taxable income is Rs. 5 lakh or below (old regime) or Rs. 12 lakh or below (new regime), you are eligible for the rebate.
Calculate the Tax Before Rebate:
Use the tax slabs to calculate the income tax liability before applying any rebate.
Apply the Section 87A Rebate:
Subtract the rebate (Rs. 12,500 for the old regime or Rs. 60,000 for the new regime) from your total tax liability.
If your total tax is less than or equal to the rebate, your tax liability will be reduced to zero.
Add the Health and Education Cess:
After applying the rebate, add the 4% health and education cess on the tax payable.
Final Tax Payable:
The result after subtracting the rebate and adding the cess is your final tax payable amount.
By following these steps, you can easily calculate your income tax liability after applying the Section 87A rebate.
Impact of Standard Deduction and Other Deductions on Tax Calculation
Under both the old and new tax regimes, certain deductions can reduce your taxable income, ultimately lowering your tax liability.
Old Regime: Taxpayers who opt for the old tax regime can claim various deductions under sections like 80C (for investments in LIC, PPF, etc.), 80D (for insurance premiums), and others. These deductions reduce the total taxable income, which means a lower tax liability. Additionally, the standard deduction of Rs. 50,000 applies to salaried individuals, further reducing taxable income.
New Regime: The new tax regime does not allow most of the deductions available under the old regime. However, salaried individuals can still benefit from a standard deduction of Rs. 75,000. This deduction increases the effective exemption limit for salaried individuals to Rs. 12.75 lakh. As a result, taxable income can be reduced by this fixed amount, lowering the overall tax payable.
By understanding how these deductions work, taxpayers can choose the regime that best suits their financial situation.
How the Section 87A Rebate Reduces the Tax Burden
The increased Section 87A rebate in FY 2025-26 is designed to directly reduce the tax burden for individuals with taxable incomes up to Rs. 12 lakh.
New Regime: Under the revised new tax regime, individuals with taxable income up to Rs. 12 lakh are eligible for a rebate of up to Rs. 60,000. This means if your calculated tax is Rs. 60,000 or less, the entire amount will be waived, resulting in zero tax payable. For those earning below Rs. 12 lakh, the rebate significantly reduces the tax burden, especially for middle-income earners.
Old Regime: In the old regime, the rebate remains at Rs. 12,500 for individuals with taxable income up to Rs. 5 lakh. For incomes between Rs. 5 lakh and Rs. 12 lakh, the rebate does not apply, so the tax payable is calculated based on the relevant income slabs.
The rebate helps reduce the financial burden, especially for taxpayers in the lower to middle-income brackets, allowing them to retain more of their earnings.
Is Section 87A Rebate Applicable for Senior Citizens?
The Section 87A rebate is not available to all taxpayers; specific conditions apply, particularly for senior citizens.
New Regime: For individuals in the new tax regime, the rebate is available to those with taxable income up to Rs. 12 lakh. However, senior citizens (aged 60-80 years) are eligible for this rebate only if their taxable income does not exceed the Rs. 12 lakh limit. Super senior citizens (above 80 years), however, are not eligible for the Section 87A rebate in the new regime.
Old Regime: In the old tax regime, the rebate applies to individuals with taxable income up to Rs. 5 lakh, including senior citizens. However, they must meet the same age criteria (60 years and above) to be eligible for the rebate. Super senior citizens are also eligible for this rebate if their income falls within the prescribed limit.
In both regimes, the rebate helps reduce the tax burden for senior citizens, but the eligibility criteria differ between the regimes.
Filing Income Tax Returns After Section 87A Rebate
Filing income tax returns is mandatory even if you are eligible for the Section 87A rebate and your tax liability is reduced to zero.
New Regime: If your tax liability is reduced to zero after applying the Section 87A rebate, you still need to file your ITR. The income tax department requires individuals to file returns to report their income, even if no tax is payable. This ensures transparency and helps maintain accurate records for future reference, especially if there are changes in income or claims for deductions in subsequent years.
Old Regime: Similarly, taxpayers under the old regime must file their returns even if the rebate results in no tax liability. Filing an ITR helps in claiming any applicable deductions under sections like 80C, 80D, etc., and provides a record of the taxpayer's income for the year.
Filing income tax returns is a legal requirement, and missing this step can lead to penalties or complications in the future. Therefore, taxpayers should ensure they file their returns on time, irrespective of the tax payable after the rebate.
Conclusion
The revisions in income tax slabs and the Section 87A rebate for FY 2025-26 bring significant relief to taxpayers, especially those earning up to Rs. 12 lakh. With the enhanced rebate, individuals under the new tax regime can enjoy a complete tax waiver, making it easier for middle-income earners to save. Whether you opt for the old or new tax regime, understanding how the rebate works and how to calculate your tax liability is key to making informed decisions during tax planning. Staying aware of the eligibility criteria and any marginal relief provisions ensures that you can make the most of these changes and optimize your financial strategy for the year.
FAQs
What is Section 87A rebate and how does it work?
Section 87A provides a rebate to individual taxpayers, reducing their tax liability. For FY 2025-26, the rebate has been increased to Rs. 60,000 for taxable income up to Rs. 12 lakh under the new tax regime. This means if your tax payable is Rs. 60,000 or less, you won't have to pay any tax after the rebate.
Is the Section 87A rebate applicable to both old and new tax regimes?
Yes, Section 87A applies to both regimes, but the eligibility and rebate limits differ. Under the new regime, the rebate applies to taxable income up to Rs. 12 lakh with a maximum of Rs. 60,000, while under the old regime, the rebate is available for taxable income up to Rs. 5 lakh with a maximum of Rs. 12,500.
Can I claim the Section 87A rebate if my income is above Rs. 12 lakh?
No, the Section 87A rebate is not available for individuals with taxable income exceeding Rs. 12 lakh under the new tax regime. For the old tax regime, the maximum rebate is available for income up to Rs. 5 lakh.
Does the Section 87A rebate reduce the overall taxable income?
No, the rebate does not reduce the taxable income. It reduces the tax liability calculated based on your taxable income. The rebate is applied after the tax is calculated but before adding the 4% health and education cess.
What if my tax liability is less than the maximum rebate under Section 87A?
If your tax liability is less than the maximum rebate amount, the rebate will only cover the tax you owe. For example, if your tax liability is Rs. 40,000, you will receive a Rs. 40,000 rebate, and you will pay no tax.
How does the Section 87A rebate apply to salaried individuals?
For salaried individuals, the Section 87A rebate applies after considering the standard deduction of Rs. 75,000 under the new tax regime. If your taxable income is up to Rs. 12 lakh, you will pay no tax after applying the rebate.
Can I claim the Section 87A rebate along with other deductions under the old tax regime?
Yes, under the old tax regime, you can claim the Section 87A rebate along with other deductions like those under sections 80C, 80D, and others. However, this rebate only applies if your taxable income is up to Rs. 5 lakh.
Do senior citizens or super senior citizens qualify for the Section 87A rebate?
Senior citizens (aged 60-80 years) qualify for the Section 87A rebate under both the old and new tax regimes, as long as their taxable income falls within the eligible range. However, super senior citizens (above 80 years) are not eligible for the rebate.
If my income is just above Rs. 12 lakh, do I still get the Section 87A rebate?
No, if your income exceeds Rs. 12 lakh under the new tax regime, you will not be eligible for the Section 87A rebate. However, there may be marginal relief available for incomes slightly above Rs. 12 lakh, but the rebate is only for those with income up to this threshold.
How do I calculate my tax after applying the Section 87A rebate?
First, calculate your tax based on the applicable slabs. Then, apply the Section 87A rebate, which will reduce your tax liability, provided it is within the maximum limit of Rs. 60,000 (under the new tax regime). If your tax liability is less than Rs. 60,000, you will pay no tax.
What is marginal relief, and how does it affect the Section 87A rebate?
Marginal relief applies to individuals whose taxable income is slightly above Rs. 12 lakh, ensuring that the tax is only paid on the amount exceeding Rs. 12 lakh. This ensures that a small increase in income does not result in a significantly higher tax burden, allowing for a smooth transition at the rebate threshold.
What should I do if my income tax return is filed under the wrong tax regime?
If you file your tax return under the wrong regime, you can file a revised return. Make sure to choose the correct regime based on your financial situation and the benefits you want to claim. Ensure that you apply for the Section 87A rebate under the appropriate regime as per your taxable income.
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