Section 87A Rebate Limit 2025: Updates and Key Insights
- Dipali Waghmode
- Apr 21
- 13 min read
Updated: Apr 29
Section 87A of the Income Tax Act, 1961, offers a crucial tax relief to resident individual taxpayers in India. It is designed to reduce the tax burden on low to middle-income earners by providing a rebate that directly lowers the taxable amount. This rebate aims to make the tax system more equitable, offering financial relief especially to those with taxable incomes at the lower end of the income spectrum.
For the financial year (FY) 2025-26, the Union Budget 2025 has brought significant changes to the Section 87A rebate. These updates expand eligibility, increase the maximum rebate amount, and introduce a broader scope under the new tax regime. Whether you are a salaried individual or have other sources of income, understanding the latest Section 87A rebate limits and eligibility criteria can help you make the most of these tax benefits.
Table of Content
What is Section 87A Rebate Limit in 2025?
Section 87A of the Income Tax Act, 1961, provides a valuable tax relief to resident individual taxpayers in India. This rebate aims to reduce the tax burden on low to middle-income earners, offering them a break on their taxable income. The primary purpose of Section 87A is to ensure that individuals with relatively lower taxable income pay a minimal or zero tax, making the tax system more equitable. This rebate is available under both the old and new tax regimes, but the limits and eligibility criteria differ between the two.
With the Union Budget 2025 introducing substantial changes, the Section 87A rebate now applies to a wider range of taxpayers, increasing both the income limit and the maximum rebate amount, especially for those opting for the new tax regime. In this blog, we will discuss the key updates and how these changes affect taxpayers for the financial year 2025-26 (Assessment Year 2026-27).
Key Updates from the Union Budget 2025
The Union Budget 2025 has brought about several important changes to the Section 87A rebate, primarily aimed at providing greater tax relief to a larger segment of taxpayers. The key updates for FY 2025-26 are as follows:
Income Limit for Rebate Increased: The income limit for claiming the rebate under the new tax regime has been raised significantly, allowing more taxpayers to benefit from it.
Rebate Amount Raised: The maximum rebate amount has been increased, offering higher relief for those with taxable income within the eligibility limit.
Impact on Taxable Income: With these updates, individuals earning up to ₹12 lakh under the new tax regime can now reduce their tax liability to zero, which was not possible under the previous provisions.
These updates make the Section 87A rebate more accessible, reducing the overall tax burden for a larger section of the population.
Income Limit Increase for New Tax Regime
Under the new tax regime, the income limit for claiming the Section 87A rebate has been increased from ₹7,00,000 in the previous year to ₹12,00,000 for FY 2025-26. This expansion opens up the rebate to more taxpayers, particularly those with mid-range incomes. Previously, individuals earning up to ₹7 lakh could avail of the rebate. Now, those earning up to ₹12 lakh can benefit, allowing many more to potentially pay zero tax if their calculated tax liability is within the rebate limit.
This change is a significant step in offering relief to a larger portion of the population under the new tax regime, where deductions are limited compared to the old tax regime.
Maximum Rebate Amount Enhancement for New Tax Regime
Along with the increase in the income limit, the maximum rebate amount under Section 87A for those opting for the new tax regime has been raised from ₹25,000 to ₹60,000. This increase means that individuals whose taxable income is below ₹12 lakh will now receive a higher rebate, further reducing their overall tax liability. In cases where the calculated tax is ₹60,000 or less, the rebate will ensure that the individual pays zero tax.
This change ensures that taxpayers with moderate income can now benefit more substantially, reducing their tax burden significantly compared to previous years.
Rebate Details for the Old Tax Regime
For those who prefer to opt for the old tax regime, the Section 87A rebate remains available but with some key differences. Under the old tax regime, the income limit for claiming the rebate has remained at ₹5,00,000, which means individuals with taxable income up to ₹5 lakh can claim the rebate. However, the maximum rebate amount under the old regime is ₹12,500.
For taxpayers whose taxable income is ₹5 lakh or below, the rebate ensures that their tax liability is reduced to zero. Despite the changes in the new tax regime, those in the old tax regime can still benefit from this valuable tax relief if their income remains within the ₹5 lakh limit.
How Section 87A Rebate Works in the New Tax Regime
The new tax regime, introduced in FY 2020-21, offers lower tax rates but eliminates most deductions and exemptions available under the old regime. However, the Section 87A rebate remains a significant benefit for those choosing this option. Under the new tax regime, taxpayers can claim a rebate if their taxable income does not exceed ₹12 lakh.
This rebate directly reduces the amount of tax payable. For instance, if an individual's taxable income is ₹12 lakh, and their calculated tax liability is ₹60,000 or less, they can reduce their tax liability to zero by claiming the rebate. This makes the new tax regime an attractive option for taxpayers with incomes up to ₹12 lakh.
Eligibility Criteria for Rebate under the New Regime
To be eligible for the Section 87A rebate under the new tax regime, taxpayers must meet the following criteria:
Income Limit: The individual's taxable income should not exceed ₹12,00,000. This is the key eligibility criterion for the rebate under the new regime for FY 2025-26.
Resident Status: The taxpayer must be a resident individual in India.
No Deductions: The rebate under the new regime is available without the need for claiming deductions like those under Sections 80C, 80D, etc., as these deductions are not available under the new tax regime.
Individuals who meet these conditions can claim the full rebate of ₹60,000, provided their calculated tax liability is within this limit.
Maximum Rebate Limit in the New Tax Regime
Under the new tax regime for FY 2025-26, the maximum rebate limit under Section 87A has been increased to ₹60,000. This is the maximum amount that an individual can reduce from their tax liability if they meet the eligibility criteria.
For taxpayers with taxable income up to ₹12 lakh, the rebate effectively means that they can eliminate their tax liability if it does not exceed ₹60,000. If the calculated tax is higher, they will need to pay the excess amount, but the rebate will still help reduce a substantial portion of their tax liability.
How Section 87A Rebate Works in the Old Tax Regime
Under the old tax regime, Section 87A provides a rebate to taxpayers with a taxable income up to ₹5,00,000. This means that individuals whose taxable income falls within this limit can reduce their overall tax liability by up to ₹12,500. The rebate is directly deducted from the tax payable, effectively lowering the tax amount due. However, it's important to note that this rebate is only applicable to income that is taxed under the normal tax slabs. Special income like capital gains is not eligible for this rebate.
Eligibility Criteria for Rebate under the Old Regime
To claim the Section 87A rebate under the old tax regime, the following criteria must be met:
The individual must be a resident in India.
The taxable income after deductions (such as those under Sections 80C, 80D, etc.) must not exceed ₹5,00,000.
Only ordinary income taxed under normal tax slabs qualifies for the rebate. Special incomes like short-term or long-term capital gains are not eligible for this benefit.
If these conditions are met, taxpayers are eligible to claim a rebate of up to ₹12,500, reducing their overall tax liability to zero if their tax calculation does not exceed this amount.
Maximum Rebate Limit in the Old Tax Regime
For the financial year 2025-26, the maximum rebate under Section 87A in the old tax regime remains ₹12,500. This is available to individuals with taxable income up to ₹5,00,000, ensuring that their tax payable is reduced to zero. If the calculated tax is less than ₹12,500, the rebate will be adjusted accordingly, but it will not exceed the ₹12,500 cap.
Eligibility Criteria for Section 87A Rebate
The eligibility for claiming Section 87A rebate is largely based on the following conditions:
Resident Individual Status: Only resident individuals are eligible for the rebate. Non-residents, NRIs, and foreign entities do not qualify.
Income Thresholds:
Under the old tax regime, taxable income must be up to ₹5,00,000 after deductions.
Under the new tax regime, the taxable income can go up to ₹12,00,000 for the rebate to apply.
Income Type: The rebate only applies to ordinary income (i.e., income taxed under the normal tax slabs). Special incomes like capital gains (both short-term and long-term) are excluded.
Old Regime vs New Regime Comparison
The key differences between the old and new tax regimes regarding Section 87A rebate are as follows:
Feature | Old Tax Regime | New Tax Regime |
Rebate Limit | ₹12,500 | ₹60,000 |
Income Limit for Rebate | ₹5,00,000 | ₹12,00,000 |
Standard Deductions | Available (e.g., ₹1,50,000 under 80C, ₹75,000 standard deduction) | Not available (no deductions) |
Eligible Income Types | Only income after deductions | Income without deductions |
While the old regime provides smaller rebate amounts and offers deductions for various expenses, the new regime has a higher rebate limit and simplified tax rates, but without any deductions.
Income Calculation for Rebate Claims
To determine eligibility for the Section 87A rebate, taxable income is first calculated after considering all allowable deductions. For example, in the old regime, a taxpayer with gross income of ₹6,50,000 can claim deductions under Section 80C (e.g., ₹1,50,000 for investments in EPF, PPF, etc.), bringing the taxable income to ₹5,00,000. Since the taxable income is within the ₹5,00,000 limit, the taxpayer can claim the full rebate of ₹12,500, effectively reducing their tax liability to zero.
In contrast, under the new regime, the taxpayer's gross income is subject to the applicable tax slabs without any deductions. If the income is up to ₹12,00,000, the taxpayer can claim the maximum rebate of ₹60,000, reducing the tax liability to zero if the calculated tax is ₹60,000 or less.
Important Notes on Section 87A Rebate
Non-Eligibility for Special Income like Capital Gains: Section 87A rebate is only available on income that is taxed under the normal tax slabs. Capital gains, whether short-term or long-term, do not qualify for the rebate. For instance, if a taxpayer earns ₹12 lakh, with ₹8 lakh from salary and ₹4 lakh from STCG, the rebate will apply only to the ₹8 lakh salary income. The ₹4 lakh STCG will be taxed separately and is not eligible for the Section 87A rebate.
Marginal Relief: If a taxpayer's tax liability slightly exceeds the rebate limit, they may be eligible for marginal relief. This ensures that taxpayers do not end up paying tax on an amount that is slightly above the rebate limit, especially when their taxable income falls just above the threshold.
Standard Deduction Impact on Rebate Eligibility
Under the new tax regime, salaried taxpayers can claim a standard deduction of ₹75,000, which effectively increases their tax-free income limit. This means that a taxpayer with income up to ₹12 lakh can claim the standard deduction and still qualify for the Section 87A rebate, making their taxable income effectively ₹12.75 lakh. As a result, individuals earning up to ₹12 lakh under the new regime can now avail themselves of the ₹60,000 rebate, reducing their tax liability to zero.
In the old regime, however, standard deductions and other tax-saving options are available, which may increase the rebate threshold for eligible individuals but do not directly impact the rebate itself under Section 87A.
Impact of Section 87A Rebate on Tax Liability
The Section 87A rebate directly reduces the tax liability of eligible individuals, providing significant relief by lowering the effective tax payable. The rebate is applied after calculating the total tax liability based on the applicable income tax slabs. This means that the rebate does not change the way income is taxed but instead acts as a reduction in the final amount payable.
For the new tax regime, where the income eligibility limit for claiming the rebate has been raised to ₹12 lakh, individuals can reduce their tax liability to zero if the calculated tax is ₹60,000 or less. Similarly, under the old regime, taxpayers with a taxable income of ₹5 lakh or less can also avail of the full rebate, making them effectively exempt from paying tax.
This rebate provides significant support for those at the lower end of the income scale, ensuring that they are not overburdened by taxation. It also contributes to simplifying tax calculations, especially for salaried individuals with straightforward income sources.
How the Rebate Affects Different Income Slabs
The impact of Section 87A varies depending on which tax regime a taxpayer opts for and their income level.
New Tax Regime:
Under the new tax regime, the maximum income limit for claiming the rebate has been significantly raised to ₹12 lakh. Individuals earning up to ₹12 lakh can reduce their tax liability to zero, provided their tax calculation is within ₹60,000. This effectively means that many taxpayers who were previously liable for some tax under the old regime can now have a zero tax liability under the new regime.
Old Tax Regime:
In contrast, the old tax regime continues to offer a maximum rebate of ₹12,500 for those with a taxable income of ₹5 lakh or less. This is a much smaller benefit compared to the new tax regime, but it still provides relief for low-income earners under the old system. Taxpayers in the old regime who earn up to ₹5 lakh will effectively pay no tax after applying the rebate.
Example of Tax Liability with Section 87A Rebate
Scenario 1: Taxpayer under the New Tax Regime
Taxable Income: ₹12,00,000
Tax Calculation: Assuming the taxpayer's total taxable income is ₹12 lakh, their tax liability under the new tax regime (before applying the rebate) is ₹60,000.
Rebate Applied: The taxpayer can apply the full ₹60,000 rebate, effectively reducing their tax liability to zero.
Outcome: No tax is payable by the individual due to the Section 87A rebate.
Scenario 2: Taxpayer under the Old Tax Regime
Taxable Income: ₹4,50,000
Tax Calculation: The tax liability under the old tax regime is ₹12,500 (as per the tax slab for income up to ₹5 lakh).
Rebate Applied: The full rebate of ₹12,500 is applied.
Outcome: The taxpayer has no tax liability after the rebate.
In both cases, the Section 87A rebate helps reduce the overall tax burden, with the new tax regime offering more significant relief for those earning up to ₹12 lakh.
Is Section 87A Rebate Applicable for Capital Gains?
No, Section 87A rebate is not applicable to capital gains income. While the rebate can be claimed on income that falls under the regular income tax slabs, it does not apply to special types of income such as capital gains.
For instance, if a taxpayer has ₹12 lakh in total income, of which ₹8 lakh is salary and ₹4 lakh is short-term capital gains (STCG), the rebate will only apply to the ₹8 lakh salary income. The ₹4 lakh STCG will be taxed separately at the applicable rates (typically 15% for STCG on equity assets), and no rebate will be applied to this portion of the income.
This distinction is important for taxpayers with mixed income sources, as capital gains are taxed at special rates and do not qualify for rebates under Section 87A.
FAQs
Q1: Can I claim Section 87A rebate if my income includes capital gains?
No, the Section 87A rebate does not apply to capital gains income. Only income that is taxed under the normal income tax slabs, such as salary and business income, qualifies for the rebate. Income like short-term capital gains (STCG) and long-term capital gains (LTCG) are taxed separately at specific rates and do not qualify for the Section 87A rebate.
Q2: Does the rebate apply to both old and new tax regimes?
Yes, the Section 87A rebate is applicable under both the old and new tax regimes. However, the eligibility criteria and rebate amounts differ. Under the old tax regime, the rebate applies to taxable incomes up to ₹5,00,000, with a maximum rebate of ₹12,500. Under the new tax regime, the rebate applies to incomes up to ₹12,00,000, with a maximum rebate of ₹60,000.
Q3: How does the rebate affect salaried individuals with standard deductions?
Salaried individuals claiming the standard deduction of ₹75,000 under the new tax regime can effectively increase their income threshold for tax liability to ₹12.75 lakh. This means that individuals earning up to ₹12.75 lakh in salary under the new regime can benefit from the Section 87A rebate and reduce their tax liability to zero if the calculated tax is ₹60,000 or less.
Q4: What if my taxable income exceeds the rebate limit?
If your taxable income exceeds the Section 87A rebate limit, the rebate will be capped at the maximum allowable amount. For instance, under the new regime, if your taxable income exceeds ₹12,00,000, you cannot claim more than ₹60,000 as a rebate. The remaining income will be taxed as per the applicable income tax slabs.
Q5: How do the changes in Budget 2025 affect taxpayers' liabilities?
The changes introduced in the Union Budget 2025 significantly reduce tax liability for taxpayers under the new tax regime. With the income limit for claiming the rebate increased to ₹12,00,000 and the maximum rebate raised to ₹60,000, individuals with taxable income up to ₹12 lakh can effectively pay zero tax. This change provides significant relief, particularly to middle-income earners.
Q6: Can the rebate be claimed for income other than salary?
Yes, the Section 87A rebate can be claimed on any income taxed under the normal tax slabs, such as income from business or profession, interest income, etc. However, it does not apply to income subject to special tax rates like capital gains, rental income, or certain types of dividends.
Q7: Does the rebate apply to all types of income?
No, the Section 87A rebate only applies to income that is taxed under the regular income tax slabs. Income from capital gains, interest on certain types of securities, and income subject to special rates of taxation do not qualify for this rebate.
Q8: How is the rebate calculated if my income includes multiple sources?
The Section 87A rebate is calculated based on your total taxable income after deductions, such as those under Section 80C or Section 80D. If your income includes multiple sources, the rebate applies to the total taxable income, but only if it falls within the eligible limits for the respective tax regime. The rebate will be adjusted based on your total income and the applicable limits for the old or new tax regime.
Q9: Are there any exemptions for high-income individuals under Section 87A?
Section 87A is specifically designed for low to middle-income earners, and there are no exemptions for high-income individuals. The rebate is only available to individuals with taxable incomes up to ₹5,00,000 under the old regime and ₹12,00,000 under the new regime. Taxpayers earning above these limits are not eligible for the rebate.
Q10: Can I claim this rebate if I have filed taxes under the new regime in previous years?
Yes, you can claim the Section 87A rebate if you are filing under the new tax regime for the current financial year. However, the eligibility for the rebate depends on the income thresholds set for each year. If you have previously filed under the new regime, the rebate would still be available as long as you meet the updated income and eligibility limits for the year.
Q11: What is the impact of the rebate on tax planning?
The Section 87A rebate plays a key role in tax planning, especially for individuals with taxable incomes within the rebate limits. It allows taxpayers to reduce their tax liability, effectively increasing their disposable income. Taxpayers can plan their investments and deductions to bring their taxable income within the rebate limits, thus reducing overall tax payments.
Q12: How does the new Section 87A rebate benefit the middle-income taxpayers?
The new Section 87A rebate provides substantial tax relief to middle-income taxpayers, especially those with taxable incomes up to ₹12,00,000 under the new tax regime. With the rebate increased to ₹60,000, individuals in this income range can reduce their tax liability to zero, which was not possible in the previous years under the same regime. This change is a significant benefit for those who earn in the ₹6-12 lakh range, providing them with greater financial flexibility.
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