Saving Taxes!
A tax rebate is a tax relief provided to individuals, particularly those in the lower-income bracket to ensure that they are not burdened with income tax if their income is below a certain threshold.
Budget 2025 Update
- For the financial year 2025-2026, the rebate allowed for individuals under the new tax regime has been raised to Rs. 60,000
- Rebate is allowed for income up to Rs. 12 Lakhs in the new tax regime
- Rebate of Rs.60,000 is not applicable for income taxed at special rates
- Marginal relief on rebate is still applicable. Please read further to understand the concept.
A tax rebate is available on income up to Rs. 7 lakh under the new tax regime and up to Rs. 5 lakh under the old regime for FY 2024-2025.
The rebate under Section 87A is available to individual taxpayers whose income does not exceed the specified threshold. The limit is Rs. 7 lakh under the new tax regime and Rs. 5 lakh under the old regime. If your income falls within these thresholds, your tax liability will be reduced to zero.
If an individual's total taxable income is up to Rs.7 lakh and chooses the new tax regime, they will be eligible for rebate of lower of the following:
Whereas a resident individual paying tax under optional tax regime (shifting out of the new tax regime) and having a total taxable income of less than Rs 5 Lakh, rebate shall be lower of the following:
Under the new tax regime, in addition to above one more rebate cover is also available for individuals having total income just above Rs. 7 lakhs.
Step 1: Calculate excess above Rs. 7 lakhs Total income – Rs 7 Lakh (A)
Step 2: Compute income-tax liability on total income (B)
Step 3: if B>A rebate under section 87A would be (B-A).
Let’s try to understand this with the below example
Mr. Ravi, 36, a resident of India, has a total income of Rs 7,15,000, comprising his salary and interest on bank fixed deposits. Under the new tax regime, his tax liability for AY 2025-26 is as follows.
Solution :
Particulars | Amount In Rs | |
Step 1: Calculate excess above Rs. 7 lakhs (Rs 7,15,000 – Rs 7,00,000) Step 2: Tax on total income of Rs 7,15,000 Tax on First Rs 3,00,000 - Nil Tax on next Rs 4,00,000 @ 5% - Rs 20,000 Step 3: Since B>A, rebate u/s 87A would be (B-A) (Rs 21,500- Rs 15,000) | 15,000
21,500 | (A)
(B) |
6,500 | (B-A) | |
Tax On total income Rebate u/s 87A | 21,500 6,500 | |
Tax payable (this is equivalent to income in excess of Rs. 7 lakhs) Add: Health & Education Cess @ 4% | 15,000 600 | |
Tax Liability | 15,600 |
The benefit of marginal relief on rebate for different income groups for FY 2025-2026 is explained below:
See the example below for rebate calculation under Section 87A.
Under the new tax regime, for individuals below 60 years of age for AY 2025 -26
Source of income (FY 2024-25) | Income (Rs) |
Gross total income | 7,00,000 |
Less: Deduction under section 80C* | NA |
Total income | 7,00,000 |
Income-tax (@ 5% from Rs 3 lakh to Rs 7 lakh) | 20,000 |
Less: Rebate u/s 87A | 20,000 |
Tax payable | Nil |
* Deduction under section 80C is not eligible for the taxpayer who pays tax under the new tax regime .
Under the old tax regime, For individuals below 60 years of age for AY 2025-26
Source of income (FY 2024-25) | Income (Rs) |
Gross total income | 6,50,000 |
Less: Deduction* under section 80C | 1,50,000 |
Total income | 5,00,000 |
Income-tax (@ 5% from Rs 2.5 to 5 lakh) | 12,500 |
Less: Rebate u/s 87A | 12,500 |
Tax payable | Nil |
*You can claim a deduction for tax-saving under Section 80C for eligible investments and expenditures, Section 80D for medical insurance, 80CCD for contribution to NPS, 80G for donations and other deductions to arrive at your total income.
Section 87A rebate can be claimed against tax liabilities on:
Note: Rebate under Section 87A cannot be adjusted against tax on long-term capital gains on equity shares and equity-oriented mutual funds (Section 112A).
Important Note: From FY 2025-26 Rebate will not be applicable on special rates under income tax.
You can claim the benefit of rebate under section 87A for FY 2024-25 under both the regime, subject to the following conditions are satisfied:
The tax rebate is capped at Rs. 12,500 under the old regime and Rs. 25,000 under the new regime. If your total tax payable is less than the rebate, you will not be liable to pay any tax.
Note that the rebate will be applied to the total tax before adding the health and education cess of 4%.
Here are a few calculations of Section 87A rebate for resident individuals (below 60 years of age) earning various levels of income:
Total Income (Rs) | Tax payable before cess (Rs) | Rebate u/s 87A (Rs) | Tax Payable + 4% Cess (Rs) |
2,70,000 | 1,000 | 1,000 | 0 |
3,60,000 | 3,000 | 3,000 | 0 |
4,90,000 | 12,000 | 12,000 | 0 |
12,00,000 | 1,72,500 | 0 | 1,79,400 |
Example 1
Mr Ram (age 62 years and resident) is a retired person earning a monthly pension of Rs 5,000. He invested in equity-oriented funds in December 2013 and sold the same in June 2021.
Taxable LTCG amounted to Rs 4,70,000. Apart from pension income and gain on equity-oriented funds, he does not have any other income. What will be his tax liability for the year 2021-22?
Mr Ram is above 60 years, but below 80 years, the basic exemption limit is Rs 3 lakh. Further, he can adjust the basic exemption limit against LTCG on equity-oriented funds. However, the adjustment should be made against normal income, i.e. other than LTCG on equity-oriented funds. In this case, he has a pension income of Rs 60,000 (Rs 5,000 × 12) and LTCG on equity-oriented funds of Rs 4.7 lakh.
Thus, after adjusting the basic exemption limit with the pension income, adjust the balance limit of Rs 2.4 lakh against LTCG.
The balance of Rs 2.4 lakh (Rs 3 lakh – Rs 60,000) will be adjusted against LTCG. Hence, after adjustment with LTCG on equity-oriented funds, the balance LTCG left is Rs 2.3 lakh (Rs 4.7 lakh – Rs 2.4 lakh).
LTCG on equity-oriented funds is taxable at 10% on the LTCG above Rs 1 lakh, hence 10% tax is levied on Rs 1.3 lakh (Rs 2.3 lakh – Rs 1 lakh). A tax of Rs 13,000 is payable.
Rebate under Section 87A will not be adjusted against tax on LTCG of equity-oriented funds (Section 112A).
Hence, Mr Ram would be liable to pay a tax of Rs 13,000 plus health & education cess @ 4%.
Financial Year | Limit on total taxable Income | Amount of rebate allowed u/s 87A |
2025-26 | Rs. 12,00,000 (under New tax regime) | Rs. 60,000 |
Rs. 5,00,000 (under Old tax regime) | Rs.12,500 | |
2024-25 | Rs. 7,00,000 (under New tax regime) | Rs. 25,000 |
Rs. 5,00,000 (under Old tax regime) | Rs.12,500 | |
2023-24 | Rs. 7,00,000 (under New tax regime) | Rs. 25,000 |
Rs. 5,00,000 (under Old tax regime) | Rs.12,500 | |
2022-23 | Rs. 5,00,000 | Rs. 12,500 |
2021-22 | Rs. 5,00,000 | Rs. 12,500 |
2020-21 | Rs. 5,00,000 | Rs. 12,500 |
2019-20 | Rs. 5,00,000 | Rs. 12,500 |
2018-19 | Rs. 3,50,000 | Rs. 2,500 |
2017-18 | Rs. 3,50,000 | Rs. 2,500 |
2016-17 | Rs. 5,00,000 | Rs. 5,000 |
2015-16 | Rs. 5,00,000 | Rs. 2,000 |
Related Content:
Section 80E - Deduction for Interest on Education Loan
Income Tax Deductions List
Section 80EE - Deduction for Interest on Home Loan
Section 80U – Tax Deduction for Disabled Individuals