Section 87A Income Tax Rebate: Eligibility, Limits & Benefits

---

Budget 2025 Updates: Increased Tax Rebate Under 87A

The Union Budget for FY 2025-26 has brought significant relief for taxpayers by increasing the tax rebate limit to ₹12 lakh per annum. Additionally, the Section 87A rebate has been increased to Rs. 60,000, up from the previous threshold of Rs. 25,000 under the new tax regime.

Under the new tax regime, if you claim a standard tax deduction of ₹75,000, you are not liable to pay tax if your income is up to ₹12.75 lakhs.

This provides significant tax relief to individuals with taxable income up to Rs. 12,75,000 under the new regime. The changes announced in Budget 2025 will be applicable from FY 2025-26 onwards.

---

Rebate u/s 87A for FY 2024-25 (AY 2025-26)

For FY 2024-25 (AY 2025-26), the rebate limit will remain Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, for the old tax regime, the threshold limit will remain the same, i.e.12,500 for income up to Rs 5,00,000. If your income falls within these thresholds, your tax liability will be reduced to zero.

Note: The 12 lakh rebate limit announced in Budget 2025 will be applicable for filing in FY 2025-26.

---

Comparison of Tax Rebate Limits

Note: As per Budget 2025, Even if your income qualifies for a rebate, certain portions may still be taxable if they are subject to special tax rates.

Example 1: Short-Term Capital Gains (STCG)

Let’s say your total income is ₹12 lakh:

• ₹8 lakh from salary and other sources.
• ₹4 lakh from short-term capital gains (STCG) on stocks or mutual funds.

Under Section 87A, the rebate applies only to the ₹8 lakh salary income. However, the ₹4 lakh STCG is taxed separately at 20%, resulting in a tax liability of ₹80,000.

Example 2: Long-Term Capital Gains (LTCG)

If the ₹4 lakh income is from long-term capital gains (LTCG) on listed equities:

• The first ₹1.25 lakh is exempt.
• The remaining ₹2.75 lakh is taxed at 12.5%, leading to a ₹34,375 tax liability.

Note: The rebate under section 87A is not applicable to special grade incomes like capital gains.

---

Marginal Relief Under Rebate 87A in the New Tax Regime

The income-tax department provides marginal relief to ensure that the tax outgo of a person doesn't become disproportionally high when their income is just marginally above the tax-free limit.

The New Tax Regime under Rebate 87A introduces a significant impact when income exceeds the threshold limit of ₹7,00,000. Without relief, even a marginal increase in income—say, from ₹7,00,000 to ₹7,00,100—would result in a sharp tax jump from nil to ₹20810 which can feel harsh.

To address this, the government provides marginal relief. This ensures that the incremental tax liability does not exceed the incremental income. The latest Union Budget for FY 2025-26 has raised the tax rebate limit to ₹12 lakh per annum. Additionally, the Section 87A rebate has been increased to Rs. 60,000, up from the previous threshold of Rs. 25,000 under the new tax regime. Salaried taxpayers earning up to ₹12.75 lakh would not have to pay taxes due to ₹75,000 standard deduction in the new regime.

Let's see how much tax one has to pay with or without marginal relief on incomes of ₹12.1 lakh, ₹12.5 lakh, and ₹12.7 lakh, according to CBDT.

The marginal relief will not apply to income of ₹12.75 lakh.

Let us understand the calculation of marginal relief:-

The tax liability on ₹12.1 lakh income without marginal relief will be ₹61,500. And, it will be calculated as follows:

However, tax on income up to ₹12 lakh is zero because of the proposed rebate of ₹60,000.

For determining the marginal relief, tax liability without marginal relief will be compared with the amount exceeding the total income up to which rebate is available. In this case, that amount is ₹10,000 (₹12,10,000-₹12,00,000).

According to CBDT, the marginal relief in this case will be ₹51,500. This is calculated by deducting income over ₹12 lakh (i.e. ₹10,000) from the total tax liability, i.e. ₹61,500-₹10,000.

Due to the marginal relief of ₹51,500, the total tax payable on income of ₹12.1 lakh will be ₹10,000 only.

---

How to Calculate Total Taxable Income for 87A Rebate

Total Taxable Income to claim rebate u/s 87A shall be your:

• Gross Total Income
• Less: Deduction u/s 80C to 80U

Example to understand the calculation of Total Taxable Income for rebate u/s 87A
Mr. Virat, a resident individual aged 28 years, has the following income particulars -

What will be the total taxable income of Mr. Virat for Assessment Year 2024-25 and 2025-26
Solution: Total Taxable Income of Mr Virat will be

Since his TTI is below the threshold of Rs. 5,00,000 as per the old regime, he is eligible for claiming rebate u/s 87A for FY 2022-23 and FY- 2023-2024.

Note: This rebate limit is increased from 5 lakhs to 7 lakhs under the new regime for FY 2023-24. It was further increased to Rs.12 lakhs in Budget 2025 which will be applicable for ITR filing for FY 2025-26.

Calculating your taxable income and filing an ITR can be time-consuming as well as confusing, especially for laymen. Don’t worry! Leave ITR filing on tax experts. Book eCA Now!

---

Steps to Claim Tax Rebate u/s 87A?

The sequential steps involved in the calculation of rebate u/s 87A are

• Calculate your Gross Total Income(GTI).
• Reduce the deductions under sections 80C to 80U.
• Calculate your Tax Payable as per Income Tax slabs.
• The amount of rebate is tax calculated or Rs 25000/12500, whichever is lower ( if your total income does not exceed Rs 7 lakhs in the case of the new tax regime and Rs. 5 lakhs in case of the old tax regime.)

The taxes payable for the FY 2024-25 (AY 2025-26) under the old regime are as under:

Rebate granted under section 87A will depend upon your taxes payable for the FY 2024-25 (AY 2025-26) under the new regime. As under:

Let us consider an example to understand the calculations better

Suppose the Total Taxable Income of Mr. Virat, who opted for the new regime, is
A) Rs. 5 Lakhs
B) Rs. 7 Lakhs
C) Rs. 8 Lakhs

Calculation of rebate u/s 87A and Tax Payable for the FY 2024-25 (AY 2025-26)

*The benefit of rebate u/s 87A is not available because total taxable income exceeds Rs 7,00,000 under the new tax regime.

Finding it hard to calculate taxes manually? Check out our Free Income Tax Calculator!

---

How Much of the Rebate Allowed u/s 87A?

As per Section 87A of the Income Tax Act, the rebate allowed is as follows:

1. Old Regime:
   • Rebate available if taxable income ≤ ₹5,00,000 after deductions like 80C (investments), 80D (health insurance), etc.
   • Maximum rebate of ₹12,500 means no tax liability for income up to ₹5,00,000.
2. New Regime (FY 2023-24 onwards):
   • Rebate applies if taxable income ≤ ₹7,00,000.
   • Maximum rebate of ₹25,000 ensures no tax liability for income up to ₹7,00,000.
3. New Regime (FY 2025-26)
   • Rebate applies to taxable income upto Rs.12,00,000
   • Maximum rebate of Rs.60,000 ensures no tax liability upto Rs.12,00,000

Eligibility to Claim a Rebate from Section 87A?

The income tax rebate under section 87A will be automatically claimed while filing your Income Tax Return. The conditions to avail rebate under Section 87A are:-

• Only resident individuals are eligible.
• Senior citizens above 60 years and up to 80 years of age are eligible to claim rebates under Section 87A.
• Super senior citizens above 80 years are not eligible to claim the rebate.
• The rebate is applicable to the total tax amount before applying the 4% health and education cess.
• The total income after subtracting the deductions should not exceed the threshold limit of Rs. 5 lakhs under the old regime or Rs. 7 Lakhs under the new regime for FY 2023-24 & FY 2024-25.

Note: For FY 2025-26, this limit under the new regime will increase to Rs.12 lakhs from earlier Rs.7 lakhs.

Did you know? If your taxable income is Rs. 5 lakh or Rs. 7 lakh , you can claim a rebate under Section 87A —making your tax liability ZERO! Filing correctly is key to claiming this rebate. Let Tax2win’s experts assist you in filing your ITR seamlessly. Contact Today.

Rebate Against Various Tax Liabilities

Section 87A rebate can be claimed against tax liabilities on:

• Income which is calculated as taxable as per the slab rate.
• Long-term capital gains under Section 112 of the Income Tax Act other than listed equity shares and equity-oriented schemes of mutual funds.
• Short-term capital gains under Section 111A for listed equity shares and equity-oriented schemes of mutual funds on which tax is payable at a flat rate of 15%.

LTCG from Equity shares and equity mutual funds

If an individual's total income has any long-term capital gain under section 112A from the sale of equity shares or equity-based mutual funds. Such an individual will not be eligible for a section 87A rebate on such income on both the old regime and the new regimne.

As per section 112A of the Income Tax Act, the gains from the sale of listed equity shares or equity mutual funds are taxed at 12.5% if the amount exceeds Rs. 1.25 lakhs in a financial year.

For example, if a person's net taxable salary is Rs 3.3 lakh per year and they have LTCG from the sale of equity shares worth Rs 1.10 lakh, The entire amount will be exempt from tax as it is within the threshold of Rs.1.25 lakhs.

Rebate Under Other Capital Gains

In the case of long-term capital gains from other assets such as real estate, unlisted shares, or short-term capital gains from equity mutual funds or equity shares. Rebate u/s 87A can be claimed on other capital gains.

Rebate Under STCG from Equity Shares and Mutual Funds

There is no restriction on claiming section a rebate u/s 87A arising from the sale of equity shares and mutual funds. Therefore, you can claim a section 87A rebate on your short-term capital gains on equity shares and mutual funds.

The main aim of introducing Rebate under section 87A was to alleviate the burden on taxpayers falling within the lowest tax bracket. This provision empowers the government to offer direct benefits to this specific group without necessitating a decrease in overall tax rates.

Key Points to Know Before Claiming 87A Rebate

Eligibility Criteria

• Resident Individuals: Only resident individuals are eligible to claim the rebate.
• Senior Citizens: Individuals aged 60 to 79 years can avail themselves of the rebate.
• Super Senior Citizens: Individuals aged 80 years and above are not eligible for this rebate.

Rebate Amount

• Calculation Basis: The rebate is applied to the total tax calculated before adding the 4% health and education cess.
• Maximum Rebate: The rebate amount will be the lower of:
  • The limit specified under Section 87A.
  • The total income tax payable (before cess).

Tax Regime

• Available Under Both Regimes: The rebate can be claimed under both the old and new tax regimes.

Applicable Tax Liabilities

You can claim the rebate against tax liabilities on:

• Normal Income: Taxed at the applicable slab rates.
• Long-Term Capital Gains: Taxed under Section 112 of the Income Tax Act (excluding gains from listed equity shares and equity-oriented mutual funds).
• Short-Term Capital Gains: Taxed at a flat rate of 15% (20% for FY 2024-25) under Section 111A for listed equity shares and equity-oriented mutual funds.

Non-Applicable Tax Liabilities

The rebate cannot be claimed against tax on long-term capital gains from:

• Listed Equity shares.
• Equity-oriented mutual funds under Section 112A.

Filing income tax returns can be complex, and availing the benefits of rebates requires careful planning. If you are uncertain about the process or need expert advice, consider seeking assistance from a qualified tax consultant or chartered accountant. Get end-to-end taxation services right from tax planning to ITR filing. Get online CA Now!