Section 87A Rebate 2025: Eligibility, Limit & Calculation
- PRITI SIRDESHMUKH
- 4 days ago
- 9 min read
Section 87A of the Income Tax Act offers a direct rebate on tax liability for resident individuals whose taxable income falls below a specific threshold. For FY 2025-26 (AY 2026-27), the government has expanded this benefit, raising the new tax regime limit to ₹12 lakh and enhancing the maximum rebate to ₹60,000. This means many salaried and middle-income earners can now effectively pay zero income tax if their net taxable income is within the eligible range. The Section 87A rebate simplifies tax planning and encourages individuals to adopt the new tax regime for greater clarity and ease of filing.
Table of Contents
What Is Section 87A Rebate and Who Can Claim It?
Section 87A of the Income Tax Act, 1961 provides a direct rebate on the tax payable by individual taxpayers who meet specific income and residency criteria. The primary objective of this rebate is to reduce the tax burden for low and middle-income earners. It effectively allows eligible taxpayers to pay zero income tax if their net taxable income falls within the specified limit. Only resident individuals are entitled to claim the rebate under Section 87A. Non-resident Indians (NRIs), Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and companies are not eligible. The rebate applies after calculating total tax liability as per applicable slab rates under the chosen regime.
Eligibility Criteria for Section 87A Rebate 2025
For the financial year 2025–26 (assessment year 2026–27), the eligibility for claiming the Section 87A rebate depends on the taxpayer’s residential status and taxable income:
The taxpayer must be a resident individual under Section 6 of the Income Tax Act.
The taxable income, after considering all applicable deductions and exemptions, should not exceed the limit prescribed for the chosen regime.
Under the new tax regime: income should not exceed ₹12,00,000.
Under the old tax regime: income should not exceed ₹5,00,000 after claiming deductions under Sections such as 80C, 80D, or 80G.
If both conditions are met, the individual can claim a rebate that directly reduces the total tax payable to zero, subject to the maximum limit applicable.
Section 87A Rebate Limit for FY 2025-26 (AY 2026-27)
The rebate limit varies depending on the tax regime chosen by the taxpayer. The following table highlights the limits under each regime:
Income Regime | Taxable Income Limit | Maximum Rebate | Tax Payable After Rebate |
Old Regime (2025-26) | ₹5,00,000 | ₹12,500 | Zero |
New Regime (2025-26) | ₹12,00,000 | ₹60,000 | Zero |
Under the new regime, if a taxpayer’s income is up to ₹12,00,000, the maximum rebate of ₹60,000 can completely offset the tax payable. For the old regime, the rebate remains capped at ₹12,500, fully eliminating tax for those with taxable income up to ₹5,00,000.
Is Section 87A Rebate Allowed in the New Tax Regime?
Yes, the Section 87A rebate is available under the new tax regime for FY 2025–26. The Budget 2025 expanded the rebate threshold from ₹7,00,000 to ₹12,00,000 and increased the rebate limit from ₹25,000 to ₹60,000. This significant revision makes the new regime more favorable for salaried individuals and middle-income earners who prefer simplified compliance without managing multiple deductions. If your total taxable income under the new regime does not exceed ₹12,00,000, you are entitled to a rebate up to ₹60,000 or the actual tax payable, whichever is lower, resulting in zero tax liability.
How Section 87A Works in the Old Tax Regime
Under the old tax regime, taxpayers can continue to claim deductions under sections like 80C, 80D, and 80G before calculating their total taxable income. After accounting for these deductions, if the income remains within ₹5,00,000, the taxpayer becomes eligible for a maximum rebate of ₹12,500 under Section 87A. This rebate directly reduces the total tax payable. For instance, if the tax liability is ₹12,000, the entire amount will be nullified through the rebate, resulting in no tax payable. However, if the taxable income exceeds ₹5,00,000, the rebate cannot be claimed even by a small margin.
Step-by-Step Guide: How to Calculate Section 87A Rebate
Compute Gross Total Income – Calculate income from all sources such as salary, house property, business or profession, and other income.
Apply Deductions (if any) – Under the old regime, apply deductions under Chapter VI-A (like 80C, 80D). Under the new regime, most deductions are not applicable.
Determine Net Taxable Income – Arrive at the final taxable income based on the chosen regime.
Calculate Tax Payable Before Rebate – Use the applicable slab rates to compute tax liability.
Check Rebate Eligibility – Verify whether the taxable income falls within ₹12,00,000 (new regime) or ₹5,00,000 (old regime).
Apply Rebate Amount – Deduct the rebate (up to ₹60,000 under the new regime or ₹12,500 under the old regime) from the total tax payable.
Add Cess (if applicable) – After applying the rebate, add 4% Health and Education Cess on the remaining tax, if any.
If the rebate fully covers the tax liability, the final tax payable becomes zero.
Example of Section 87A Rebate Calculation (New Regime 2025)
Consider a taxpayer with a net taxable income of ₹11,50,000 under the new regime for FY 2025–26.
Tax on ₹11,50,000 as per slab rates = ₹59,500
Maximum rebate available under Section 87A = ₹60,000
Tax after rebate = ₹59,500 – ₹59,500 = ₹0
Health and Education Cess = ₹0
In this case, since the tax payable is fully covered by the rebate, the individual pays no tax. This shows how Section 87A can completely eliminate tax liability for eligible income levels under the new regime.
Key Updates from Budget 2025 on Section 87A
The Union Budget 2025 introduced significant updates to Section 87A, enhancing its reach and simplifying tax compliance. The rebate threshold under the new regime was increased from ₹7,00,000 to ₹12,00,000, while the maximum rebate amount was raised to ₹60,000. These changes are designed to promote the new tax regime by making it more beneficial for salaried and middle-income individuals. As a result, taxpayers with income up to ₹12 lakh under the new regime will now pay zero income tax, eliminating the need for multiple deductions or complex tax planning.
Common Mistakes to Avoid While Claiming Section 87A Rebate
Selecting the wrong tax regime while filing the return.
Forgetting to include deductions under the old regime before determining eligibility.
Misreporting total taxable income due to inaccurate TDS or salary entries.
Assuming that HUFs or NRIs can claim the rebate.
Failing to verify that the taxable income remains within the threshold after deductions.
Ensuring accurate computation and validation through professional platforms like TaxBuddy can help avoid these errors and ensure correct claim of the rebate.
Importance of Choosing the Right Tax Regime
The choice between the old and new tax regimes can significantly affect overall tax savings. Taxpayers with multiple deductions, such as investments under 80C, insurance premiums, and home loan interest, might benefit from the old regime. However, those with simpler financial structures often find the new regime more rewarding due to its higher rebate threshold and lower effective tax rates. Evaluating your income structure, exemptions, and deductions is essential before deciding which regime to opt for each financial year.
How TaxBuddy Helps You Claim Section 87A Rebate Accurately
TaxBuddy simplifies the process of determining eligibility and claiming the rebate under Section 87A. Its AI-driven filing system automatically computes taxable income under both regimes, applies the correct rebate, and ensures no manual errors occur. The platform also provides expert-assisted plans where professionals review filings for accuracy and compliance. By using TaxBuddy, taxpayers can avoid mistakes in income classification, TDS entries, and deduction claims, ensuring that every eligible rebate is claimed seamlessly.
Conclusion
Section 87A continues to be one of the most impactful tax relief provisions for resident individuals, especially after the 2025 Budget updates. It ensures zero tax liability for those within the prescribed income limits, encouraging simpler and stress-free compliance. Platforms like TaxBuddy make this process easier by automating calculations and ensuring accurate filing under the correct regime.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy offers both self-filing and expert-assisted options for income tax return filing. The self-filing plan is designed for individuals who are confident in filing their own returns. It includes AI-based validation that automatically checks for errors and fills data from uploaded documents like Form 16. The expert-assisted plan, on the other hand, allows a professional to review your financials, apply the right deductions, and ensure compliance with the Income Tax Act. This dual model ensures that both simple and complex tax situations are handled accurately.
Q2. Which is the best site to file ITR? While the official Income Tax Department portal (incometax.gov.in) is available for all taxpayers, many prefer private platforms that simplify the process. TaxBuddy is considered one of the best tax filing platforms in India because it combines automation with professional expertise. Its AI-powered system detects errors in real-time, provides tax-saving insights, and ensures compliance with the latest laws. For taxpayers with multiple income sources or who require detailed support, TaxBuddy offers a seamless and secure experience.
Q3. Where to file an income tax return? Income tax returns can be filed either on the official government website or through trusted e-filing platforms like TaxBuddy. The process involves logging into your account, selecting the applicable ITR form (such as ITR-1 or ITR-2), entering income details, and submitting the return after verification. For those who want a smoother process, TaxBuddy provides guided assistance, automatic data import from Form 16, and expert validation to ensure accuracy before submission.
Q4. Who is eligible for the Section 87A rebate for FY 2025-26? For FY 2025-26 (AY 2026-27), only resident individuals in India are eligible to claim the Section 87A rebate. The total taxable income, after considering all applicable deductions, must not exceed ₹12,00,000 under the new tax regime or ₹5,00,000 under the old tax regime. The rebate applies only after computing the total tax liability under the chosen regime. Non-residents, Hindu Undivided Families (HUFs), and companies are not eligible for this benefit.
Q5. Can NRIs claim the Section 87A rebate? No, Non-Resident Indians (NRIs) are not eligible for the Section 87A rebate. The provision explicitly applies only to resident individuals as per Section 6 of the Income Tax Act. Even if an NRI earns income in India and files a return, they cannot claim this rebate. However, they can still claim deductions and reliefs that are otherwise available under Indian tax laws, depending on the nature of their income.
Q6. What is the maximum rebate limit under the new regime? Under the new tax regime for FY 2025-26, the maximum rebate allowed under Section 87A is ₹60,000. This rebate is applicable when the taxable income does not exceed ₹12,00,000. If the tax liability before rebate is ₹60,000 or less, it is fully offset by the rebate, bringing the total tax payable to zero. This makes the new regime highly beneficial for middle-income earners, particularly salaried individuals.
Q7. Is the rebate available if income exceeds ₹12 lakh under the new regime? No, the rebate under Section 87A is not available if the taxable income exceeds ₹12,00,000 under the new regime. Even a small increase beyond this threshold disqualifies the taxpayer from claiming the rebate. In such cases, the individual must pay the tax calculated as per the applicable slab rates without any rebate adjustment.
Q8. Do I need to submit any investment proof to claim the rebate? No, Section 87A is not linked to any specific investments or deductions. The rebate is applied automatically based on the taxpayer’s net taxable income. Unlike deductions under Sections such as 80C or 80D, no proof or documentation is required to claim this rebate. However, accurate reporting of income and deductions is essential to ensure that the tax computation reflects the correct eligibility.
Q9. Will the rebate reflect automatically while filing ITR online? Yes, the Section 87A rebate is automatically applied during income tax return filing when the taxable income falls within the eligible limit. The e-filing system computes the rebate based on the selected tax regime and taxable income. On platforms like TaxBuddy, the AI-driven engine ensures that the rebate is accurately applied without manual calculation, reducing the risk of errors or omissions.
Q10. How does the rebate affect TDS and advance tax payments? The Section 87A rebate is applied at the time of final tax computation during ITR filing. It does not directly affect the amount of TDS deducted by the employer or the advance tax paid during the year. However, after claiming the rebate, if the total tax payable becomes zero, any excess TDS or advance tax paid will be refunded by the Income Tax Department. This makes it crucial to file returns accurately to receive the correct refund.
Q11. When will the Section 87A rebate refund be credited to my bank account? Once the Income Tax Department processes the return and verifies eligibility, the refund—if applicable—is credited directly to the taxpayer’s bank account. Typically, the refund is processed within 30 to 45 days after ITR verification. To avoid delays, ensure your bank account is pre-validated and linked with your PAN. Platforms like TaxBuddy help users verify and update their bank details during filing to ensure smooth credit of refunds.
Q12. Can TaxBuddy help calculate Section 87A rebate based on my Form 16? Yes, TaxBuddy can automatically compute your Section 87A rebate using the details from your uploaded Form 16. Its intelligent system analyzes salary, deductions, and exemptions to determine which tax regime suits you best and whether you qualify for the rebate. For complex cases involving multiple income sources, TaxBuddy’s expert-assisted plan ensures that a professional verifies your computation, helping you claim the rebate accurately and file an error-free return.
