Income Tax Rebate Under Section 87A

Rebate is a tax reduction available to resident individuals when they earn income within 10% tax slab. Under the new tax regime, a rebate of Rs.60,000 is allowed for an income up to Rs. 12 lakhs. Under the old regime, a rebate of Rs. 12,500 is allowed for an income up to Rs. 5 lakhs.

As a result, the marginal relief will be available for income exceeding just over Rs. 12 lakhs.

What is Rebate Under Section 87A?

• Rebate is a tax benefit provided to middle to low income earners. It is provided only to resident individuals, earning income within 10% slab rate. 
• Rs. 60,000 rebate is allowed for income within Rs. 12 lakh under the new regime and Rs. 12,500 for income earned within Rs. 5 lakh under the old regime. 
• Persons having income within these income level do not need to pay any income tax. 
• The rebate can be applied to the total tax before adding a health and education cess of 4%.

Eligibility Criteria for Rebate

1. Only resident individuals are eligible to avail rebate under this section.
2. Rebate under Section 87A is available to taxpayers whose taxable income does not exceed:
   1. Rs. 12 lakh under the new tax regime and 
   2. Rs. 5 lakh under the old regime.
3. The amount of rebate will be lower than the limit specified under Section 87A or total income tax payable (before cess).
4. Rebate under Section 87A cannot be adjusted against tax on long-term capital gains under section 112A.

Section 87A Rebate Limit - New vs Old Tax Regime

Income tax rebate limit under Section 87A is different for both the new and old tax regime for FY 2025-26.

1. New Regime

• For FY 2025-26, taxpayers are eligible for a tax rebate of up to Rs. 60,000 under the new tax regime. 
• Taxpayers with a taxable income of up to Rs. 12 lakh will have zero tax liability. 
• But the rebate allowed shall not exceed the total tax payable before cess in any case.

2. Old Regime

• For FY 2025-26, the old tax regime offers a tax rebate of up to Rs. 12,500. 
• Taxable income of up to Rs. 5 lakh is effectively tax-free. 
• But the rebate allowed shall not exceed the total tax payable before cess in any case.

How to Claim Income Tax Rebate in FY 2025-26?

Step 1: Calculate your gross total income for the financial year

Step 2: Reduce your tax deductions for tax savings, investments, etc.

Step 3: Arrive at your total taxable income after reducing the tax deductions.

Step 4: Declare your gross income and tax deductions in ITR.

Step 5: Claim a tax rebate under section 87A if your total income does not exceed specified limits. (if your income does not exceed the limits, rebate is automatically calculated by the portal)

Income Tax Rebate Example

1. Under the new tax regime for AY 2026 -27

* Deduction under section 80C is not eligible for the taxpayer who pays tax under the new tax regime .

2. Under the old tax regime for AY 2026-27 

Incomes Not Eligible for Section 87A Rebate

Section 87A rebate cannot be claimed against tax liabilities on:

• Long-term capital gains under Section 112A of the Income Tax Act. 
• Short-term capital gains under Section 111A.
• Income taxed at special rates such as winnings from lottery and game shows. 

Marginal Relief in New Tax Regime

• If the income of an individual slightly exceeds Rs 12 lakhs, and tax is more than the income exceeding Rs.12 lakhs, then the tax will be limited to the income exceeding Rs. 12 lakhs.
• In simple words, when the extra tax is greater than extra income above Rs. 12 lakhs, the tax payer is only required to pay excess income above Rs. 12 lakh.
• This is called marginal relief allowed on rebate.
• The steps to calculate the marginal relief on rebate is given below

How to Claim Marginal Relief on Rebate?

Step 1: Calculate excess above Rs. 12 lakhs Total income – Rs 12 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).

Example

Mr. Ravi, 36, a resident of India, has a total income of Rs 12.15 lakhs, comprising his salary and interest on bank fixed deposits. Under the new tax regime, his tax liability for AY 2026-27 is as follows.