Who is Eligible for Section 87A Rebate? A Detailed Explanation for FY 2024-25 and FY 2025-26

Section 87A of the Income Tax Act, 1961, provides a rebate to resident individual taxpayers, aimed at reducing their tax liability. This provision benefits low and middle-income earners, making it easier for them to manage their tax burden. The rebate applies under both the old and new tax regimes, with different income thresholds and benefit amounts.

Understanding the specifics of Section 87A, including who qualifies for the rebate and the conditions for claiming it, is essential for taxpayers looking to optimize their tax filings. This section clarifies the criteria for eligibility and explains how recent budget changes impact the rebate for FY 2024-25 and FY 2025-26.

---

Table of Contents

1. Who is Eligible for Section 87A Rebate?

2. Eligibility Criteria for Section 87A Rebate

3. How Section 87A Works in the Old Tax Regime

4. Is Section 87A Available in the New Tax Regime?

5. Special Conditions for Senior Citizens and Super Senior Citizens

6. Exclusion of Special Rate Income from Section 87A

7. How to Claim Section 87A Rebate

8. Important Considerations

9. Conclusion

10. Frequently Asked Questions (FAQs)

---

Who is Eligible for Section 87A Rebate?

Section 87A of the Income Tax Act, 1961, offers a tax rebate to eligible resident individual taxpayers in India. This provision aims to provide financial relief to individuals with lower and middle-income levels, effectively reducing their income tax burden. The eligibility criteria and rebate amounts under Section 87A vary depending on whether the taxpayer is following the old or new tax regime.

Understanding these criteria is essential for taxpayers seeking to minimize their tax liability while ensuring compliance with the Income Tax Act.

Overview of Section 87A

Section 87A offers a rebate on income tax liability for eligible individuals. The rebate helps lower the tax payable on taxable income up to a certain limit. Under this section, only resident individual taxpayers are eligible for the rebate, with specific conditions regarding income thresholds and eligibility based on the applicable tax regime (old or new).

The rebate is available on taxable income after accounting for eligible deductions, such as those under Section 80C, 80D, and others. Importantly, the rebate amount is capped at the tax payable before the inclusion of health and education cess.

Purpose and Benefits of the Rebate

The primary purpose of Section 87A is to reduce the financial burden on lower-income taxpayers. By offering a rebate, the government provides a direct benefit to individuals earning below a certain income threshold, enabling them to save on taxes.

The benefits of Section 87A include:

1. Lower Tax Liabilities: Individuals meeting the eligibility criteria pay less tax, easing their financial strain.

   
   

2. Increased Disposable Income: By reducing the amount of tax owed, taxpayers can keep more of their earnings.

   
   

3. Support for Low to Middle-Income Groups: Section 87A helps make tax payments more manageable for those who earn modest incomes.

Eligibility Criteria for Section 87A Rebate

To qualify for the Section 87A rebate, an individual must meet the following key criteria:

1. Resident Individual Status Only resident individuals are eligible for the rebate. Non-resident individuals, Hindu Undivided Families (HUFs), firms, and companies do not qualify for Section 87A. Furthermore, the rebate is available to senior citizens (60–80 years) under both the old and new tax regimes, but super senior citizens (above 80 years) are not eligible.

   
   

2. Income Threshold for the Old Tax Regime

   • For the old tax regime, the rebate is available if the total taxable income after deductions does not exceed ₹5,00,000. This includes deductions such as those under Section 80C (e.g., EPF, PPF) and other Chapter VI-A deductions. If the taxable income is ₹5,00,000 or less, the individual qualifies for the rebate.

     
     

3. Income Threshold for the New Tax Regime

   • For the new tax regime, the income threshold was ₹7,00,000 in FY 2024-25, but it has been increased to ₹12,00,000 for FY 2025-26, as per the Union Budget 2025. Under the new regime, the rebate applies to individuals whose taxable income falls within the prescribed limits after considering available deductions.

How Section 87A Works in the Old Tax Regime

In the old tax regime, taxpayers can claim deductions under various sections like 80C, 80D, and others before arriving at their taxable income. Once the taxable income is determined, the following rules apply for claiming the Section 87A rebate:

1. Income ThresholdThe rebate under the old tax regime is available if the taxable income after deductions does not exceed ₹5,00,000. This is the limit for claiming the rebate, and it is applicable for taxpayers with income up to this amount.

   
   

2. Rebate AmountThe maximum rebate available under the old tax regime is ₹12,500 for taxpayers whose taxable income is ₹5,00,000 or less. If the taxpayer's total tax liability is lower than ₹12,500, the rebate amount will be equal to the tax payable. If the tax liability exceeds ₹12,500, the rebate will be capped at ₹12,500.

   
   

3. Taxable Income CalculationTo calculate taxable income under the old tax regime, taxpayers must first account for deductions under Chapter VI-A. This includes deductions like 80C for investments in PPF, EPF, life insurance premiums, and other eligible items. Once deductions are subtracted from the gross total income, the remaining amount is considered taxable income. If this taxable income is ₹5,00,000 or less, the Section 87A rebate can be applied to reduce the final tax liability.

Is Section 87A Available in the New Tax Regime?

Yes, Section 87A is available under the new tax regime, offering a rebate to eligible resident individual taxpayers. However, the income thresholds and rebate amounts differ from those under the old tax regime. The new tax regime has introduced changes that make it more accessible for taxpayers with higher incomes, as reflected in the increased rebate limit and eligibility criteria in recent budgets.

Income Threshold in FY 2024-25

In FY 2024-25, the income threshold for claiming the Section 87A rebate under the new tax regime was set at ₹7,00,000. This means that individuals with a taxable income of ₹7,00,000 or less could claim the rebate, reducing their overall tax liability, provided they meet other eligibility criteria.

Income Threshold in FY 2025-26 (Budget 2025)

The Union Budget 2025 introduced an important change to the new tax regime. For FY 2025-26, the income threshold for the Section 87A rebate will increase to ₹12,00,000. This adjustment allows more taxpayers to benefit from the rebate, providing greater relief to those in the middle-income bracket and enhancing the attractiveness of the new tax regime.

Rebate Amount under the New Regime

Under the new tax regime, the rebate available under Section 87A is based on the taxpayer's income. For FY 2024-25, the maximum rebate was ₹25,000 for those with a taxable income of up to ₹7,00,000. However, for FY 2025-26, as per the Union Budget 2025, the rebate amount will increase significantly to ₹60,000 for those with taxable income up to ₹12,00,000, further enhancing the tax benefits under the new regime.

Special Conditions for Senior Citizens and Super Senior Citizens

Senior citizens, individuals aged 60 years and above but below 80 years, can benefit from Section 87A under the new tax regime, provided their income falls within the eligible limits. However, there are specific exclusions for super senior citizens (aged 80 years and above), who are not eligible for this rebate, regardless of their income level.

Eligibility for Senior Citizens (60–80 years)

Senior citizens, defined as individuals between the ages of 60 and 80, are eligible for the Section 87A rebate if their taxable income falls within the prescribed limits for the new tax regime. This applies to those whose income does not exceed ₹7,00,000 for FY 2024-25 or ₹12,00,000 for FY 2025-26, as per the Union Budget 2025. The rebate under this provision provides them with a significant reduction in tax liability.

Why Super Senior Citizens Are Not Eligible

Super senior citizens, individuals aged 80 years or more, are not eligible for the Section 87A rebate under the new tax regime. This limitation stems from the fact that the rebate is designed primarily for taxpayers in the lower to middle-income brackets, and senior citizens already receive a separate set of tax benefits, including higher exemption limits and tax relief under other provisions like the senior citizen's exemption limit.

Exclusion of Special Rate Income from Section 87A

Section 87A applies only to income taxable under the normal income tax slabs and does not extend to income that is taxed at special rates. This means that certain types of income, such as capital gains on listed securities or other incomes taxed at special rates, are excluded from the rebate calculation. As a result, taxpayers must ensure that their total income for rebate eligibility is derived from sources taxed at normal rates.

Capital Gains and Other Special Rate Income

Capital gains, particularly long-term capital gains (LTCG) on listed equity shares and mutual funds, are taxed at special rates under Section 112A, and therefore, are excluded from Section 87A rebate eligibility. Similarly, short-term capital gains (STCG) under Section 111A, which are taxed at 15%, also do not qualify for the rebate. Taxpayers earning significant capital gains may find that their overall income surpasses the eligible rebate threshold, but only the income taxable under normal slabs will be considered.

How Special Rates Affect Eligibility

Special rates of taxation on certain income types, like capital gains or dividends, directly affect a taxpayer's eligibility for Section 87A. Since the rebate applies to taxable income under normal income tax slabs, any income taxed at special rates is excluded from the rebate calculation. Taxpayers who earn a combination of regular income and special rate income need to factor in the tax treatment of each type of income when determining their eligibility for the rebate.

How to Claim Section 87A Rebate

To claim the Section 87A rebate, taxpayers must file their Income Tax Return (ITR) and ensure that their total taxable income falls within the prescribed limits. During the filing process, after calculating the gross total income and deducting eligible exemptions and deductions under Chapter VI-A, the rebate is automatically applied if the taxable income qualifies for the benefit.

It’s important to ensure that the correct details are entered in the ITR form, specifically the taxable income, to avoid errors in claiming the rebate.

Claiming the Rebate While Filing ITR

When filing your ITR, the Section 87A rebate is claimed as a part of the tax calculation process. Once the taxable income is determined after applying eligible deductions (such as under Sections 80C, 80D, and 80G), the rebate will be applied to reduce the tax liability.

The rebate is reflected in the ITR form under the "Tax Computation" section. For the FY 2024-25 and FY 2025-26, you will see the rebate being automatically applied if your income meets the qualifying threshold in the respective tax regimes.

What to Do If You Miss the Rebate in the Original Filing

If you miss claiming the Section 87A rebate in your original ITR filing, it is still possible to claim it by filing a revised return. The deadline for filing a revised or belated return is typically extended, and for FY 2023-24, the last date to claim the rebate through a revised return is January 15, 2025.

To correct the omission, you must file the revised return and include the rebate in the “Tax Computation” section. Ensure that the income, deductions, and tax calculation are updated accurately in the revised return to avoid any discrepancies.

Important Considerations

• Rebate Applicability Under Both Tax Regimes Section 87A is available under both the old and new tax regimes, but with different income thresholds and rebate amounts. Taxpayers must ensure that they are filing under the correct regime, based on their preference for either exemptions and deductions (old regime) or lower tax rates (new regime).

  
  

• Updates in Budget 2025 The recent Budget 2025 has significantly increased the income threshold for the new tax regime, making more taxpayers eligible for a higher rebate. The new limit of ₹12,00,000 for the new tax regime in FY 2025-26 offers substantial tax relief compared to the previous ₹7,00,000 threshold for FY 2024-25.

  
  

• Income from Capital Gains and Section 87A Income from special rate sources, such as long-term capital gains (LTCG) and short-term capital gains (STCG), is not eligible for the Section 87A rebate. Therefore, taxpayers with income from these sources must exclude it from the taxable income calculation while determining their eligibility for the rebate.

Conclusion

Section 87A provides a crucial tax rebate to resident individual taxpayers, allowing them to reduce their overall tax liability. It is available under both the old and new tax regimes, with eligibility based on income thresholds. While claiming the rebate is straightforward when filing your ITR, it’s important to be mindful of the specific conditions, such as income from special rate sources and the recent changes introduced in the Budget 2025. By understanding the requirements and applying the rebate correctly, taxpayers can benefit from significant tax relief.

FAQs

1. Who is eligible for the Section 87A rebate?

   Section 87A rebate is available to resident individual taxpayers, including senior citizens aged between 60 and 80 years. It is not applicable to Hindu Undivided Families (HUFs), firms, companies, or non-resident individuals.

   
   

2. What income qualifies for the Section 87A rebate?

   To qualify for the rebate, your taxable income must fall within the prescribed limit. For the old tax regime, it must not exceed ₹5,00,000, while for the new tax regime, the threshold is ₹7,00,000 for FY 2024-25 and ₹12,00,000 for FY 2025-26.

   
   

3. Can senior citizens claim the Section 87A rebate?

   Yes, senior citizens aged between 60 and 80 years are eligible for the Section 87A rebate. However, super senior citizens (aged 80 years and above) are not eligible for this rebate.

   
   

4. How much is the Section 87A rebate for FY 2024-25?

   In the old tax regime, the rebate is ₹12,500 for income up to ₹5,00,000. Under the new tax regime, the rebate is ₹25,000 for income up to ₹7,00,000.

   
   

5. Has the Section 87A rebate increased for FY 2025-26?

   Yes, as per Budget 2025, the rebate under the new tax regime has increased to ₹60,000 for taxable income up to ₹12,00,000, while the rebate in the old regime remains ₹12,500 for income up to ₹5,00,000.

   
   

6. What types of income are excluded from the Section 87A rebate?

   The rebate does not apply to income taxed at special rates, such as long-term capital gains (LTCG) on listed shares and equity-oriented mutual funds under Section 112A, as well as other capital gains subject to special tax rates.

   
   

7. How do I calculate my taxable income for Section 87A eligibility?

   To calculate your taxable income, start with your gross total income, then subtract eligible deductions under Chapter VI-A, such as those under Sections 80C, 80D, and 80G. The remaining amount must be below the applicable income threshold for you to claim the rebate.

   
   

8. Can I claim Section 87A if I missed it in the original ITR filing?

   Yes, you can file a revised return to claim the Section 87A rebate. The revised return must be filed within the prescribed deadline, and for FY 2023-24, the last date is January 15, 2025.

   
   

9. How do I claim the Section 87A rebate in my ITR?

   The rebate is claimed when filing your ITR by entering the correct taxable income and ensuring that your income falls within the qualifying limits. The rebate will be automatically applied during the tax computation process.

   
   

10. Does the rebate apply to both old and new tax regimes?

    Yes, Section 87A is available under both the old and new tax regimes, but the income thresholds and rebate limits differ. The old regime has a lower threshold and rebate, while the new regime offers higher limits.

    
    

11. What happens if my taxable income is below the threshold but I have capital gains income?

    If your taxable income includes capital gains, you must ensure that the capital gains are excluded from the calculation for Section 87A eligibility, as the rebate does not apply to income taxed at special rates, including capital gains.

    
    

12. Will the Section 87A rebate reduce my overall tax liability to zero?

Yes, if your tax liability is less than the rebate amount, the tax payable will be reduced to zero. However, the rebate cannot exceed the actual tax liability, and it will not apply to health and education cess, which are additional charges.