Tax Rebate Under Section 87A – A Complete Guide

Paying taxes is an important responsibility, but understanding available tax benefits ensures that you save more for your future. The tax rebate under Section 87A helps individual taxpayers reduce their income tax liability directly. By using this rebate wisely, you can plan your finances efficiently and move closer to your financial goals.

What is a Tax Rebate Under Section 87A?

The rebate under Section 87A of the Income Tax Act provides financial relief to resident individuals whose total taxable income falls below a specific limit. Unlike deductions that lower taxable income, a rebate directly reduces your final tax payable.

Introduced to support low and middle-income groups, this tax relief under Section 87A applies under both the old and new tax regimes, with revised thresholds for each financial year.

Eligibility Criteria for Rebate Under Section 87A

To claim the income tax rebate under Section 87A, individuals must meet specific conditions:

• Resident Individual: Only Indian residents are eligible. Non-residents (NRIs) and Hindu Undivided Families (HUFs) cannot claim this rebate.
• Income Limit:
  • Under the old tax regime, the rebate is applicable if the taxable income is up to ₹5 Lakh .
  • Under the new tax regime, for FY 2025–26, the rebate is available for income up to ₹12 Lakh .
• Applicable Taxpayer Type: Salaried employees, self-employed individuals and pensioners can claim it.
• Senior Citizens: Eligible if they meet the income threshold; no separate limit applies.
• Business Entities: Not eligible (applies to individuals only).

How Much is the Tax Rebate Allowed Under Section 87A?

The maximum rebate under Section 87A has evolved over the years, reflecting income levels and government budgets. Below are the limits under the old and new regimes:

Key Highlights:

• The old regime rebate continues to be capped at ₹12,500 for incomes up to ₹5 Lakh.
• The 87A rebate in the new tax regime now extends up to ₹60,000 for incomes up to ₹12 Lakh (as per Budget 2024–25).
• The change aligns with the aim of the government to simplify taxation and make the new tax structure more appealing.

This step is part of the broader initiative of the government to simplify taxation and promote the adoption of the new regime.

Also Read: Tax Benefit on Home Construction Loan

Rebate Under Section 87A in Old vs New Tax Regime

The rebate under Section 87A differs significantly between the two tax regimes. Here is a side-by-side comparison:

Taxpayers with investments under 80C, 80D, HRA or Home Loan benefits may still find the old regime advantageous, while those with straightforward income structures benefit more under the new regime with higher rebate limits.

Also Read: Old Tax Regime vs. New Tax Regime

Understanding Marginal Relief Related to Section 87A Rebate

When the income of a taxpayer slightly exceeds the rebate threshold, marginal relief ensures they do not lose the entire benefit abruptly.

Definition:

Marginal relief limits the additional tax payable to the exact amount by which income exceeds the rebate limit, preventing sudden tax jumps.

Example:

• Case A: Income = ₹12,00,000 (eligible for full rebate of ₹60,000) → No tax payable after rebate.
• Case B: Income = ₹12,10,000 (exceeds limit by ₹10,000).

Tax before rebate (approximate): ₹1,20,000

Income exceeding limit: ₹10,000

Under marginal relief, the additional tax payable cannot exceed ₹10,000.

Thus, marginal relief ensures fair treatment for those whose income marginally surpasses the threshold.

How to Claim Tax Rebate Under Section 87A

The rebate under Section 87A can be easily claimed while filing your Income Tax Return (ITR) online.

Steps to claim the rebate:

1. Compute your total taxable income under the chosen regime.
2. Check if your income falls below the applicable threshold (₹5 Lakh for the old, ₹12 Lakh for the new regime).
3. The e-filing system will automatically apply the rebate under the correct section.
4. Review the computation summary before final submission.
5. Submit and e-verify your ITR.

Ensure accurate entry of income and deductions, as the rebate is calculated automatically based on eligibility.

Also Read: What Are the Tax Benefits of a Business Loan?

Rebate Under Section 87A Against Various Tax Liabilities

The Section 87A rebate applies to total income tax payable after adding cess and surcharge but excludes certain types of income.

Rebate is applicable on:

• Regular taxable income under both old and new regimes.
• Short-term capital gains (other than those under Section 111A).
• Salary, pension or professional income.

Rebate not applicable on:

• Long-term capital gains are taxed under Section 112A.
• Dividend income exceeding threshold limits.
• Special rate incomes, such as lottery winnings or casual incomes.

In essence, the rebate reduces total tax liability but not specific taxes levied at special rates.

Final Thoughts

Understanding Section 87A of the Income Tax Act equips you to optimise your tax liability and build a healthy financial plan. The decision to enhance the maximum rebate under Section 87A by the government offers a stronger incentive for salaried and self-employed individuals to adopt the new regime.

FAQs

Q.1. Can NRIs claim a rebate under Section 87A?

A. Only resident individuals are eligible for this rebate.

Q.2. Is the rebate available for senior citizens?

A. Senior citizens can claim the rebate if their income falls within the prescribed limit.

Q.3. Does Section 87A of the Income Tax Act apply to HUFs?

A. The benefit is available only to individuals, not Hindu Undivided Families.

Q.4. Can the rebate apply if income includes capital gains?

A. A rebate can be applied if income includes capital gains but not for long-term capital gains under Section 112A.

Q.5. Is the rebate automatically applied?

A. It is auto-calculated by the income tax e-filing system during return submission.

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