Income Tax Rebate under Section 87A

One small but powerful tool salaried individuals often overlook when saving money on taxes is the Income Tax Rebate Section 87A. If you’re confused about tax-saving options, whether you’re exploring the old or new tax regime or even if you’re just learning how to file ITR online, understanding Section 87A can help you lower your tax liability smartly.

In this article, we’ll break down what Section 87A is, how much rebate you can claim, and its impact under different tax regimes. 

What is Section 87A of the Income Tax Act?

Section 87A of the Income Tax Act offers a rebate to taxpayers whose total taxable income is within a certain limit. Think of it as a direct discount on your tax payable — if you meet the income condition, you can get a certain amount reduced from your final tax amount.

It’s important to note that the rebate is not a deduction from your income but a reduction in the tax you must pay after calculating it on your total income.

Budget 2025 Update

• For FY 2025-26, the rebate under the new tax regime has been increased to ₹60,000.

• The ₹60,000 rebate is not available on income taxed at special rates. 
• Under the new tax regime, individuals with an annual income of up to ₹12 lakh are now eligible for a higher tax rebate, effectively making them tax-exempt. This change benefits salaried taxpayers even further, raising the exemption limit to ₹12.75 lakh with the standard deduction.
• Marginal relief under Section 87A of the Income Tax Act ensures that those slightly exceeding the ₹12 lakh income limit don’t face an excessive tax burden. This provision prevents a situation where a minor increase in income results in a disproportionately higher tax liability.
• For FY 2024-25, the rebate is applicable for income up to ₹7 lakh (new tax regime) and ₹5 lakh (old tax regime).

Who Can Avail the 87A Rebate?

To claim the rebate under Section 87A:

• You must be a resident individual (not applicable to firms, HUFs, companies, etc.).
  
• After claiming deductions under Chapter VI-A (such as Sections 80C, 80D, etc.), your total income should not exceed ₹5 lakh in a financial year under the old tax regime and ₹7 lakh under the new tax regime.
• The rebate is available under both the old tax regime and the new.
  

Rebate under Section 87A for FY 2024-25 (AY 2025-26)

Individual taxpayers whose total income falls within the prescribed limits can claim the Section 87A rebate. For FY 2024-25, the income threshold is ₹7 lakh under the new tax regime and ₹5 lakh under the old regime. If your income stays within these limits, your tax liability becomes zero.

How Much Rebate is Allowed under Section 87A?

If an individual’s total taxable income is up to ₹7 lakh and they opt for the new tax regime, they are eligible for: 

• For FY 2024-25 (AY 2025-26), the rebate limit under the new tax regime will continue to be ₹7 lakhs. It means a resident individual with taxable income up to ₹7 lakhs will receive a tax rebate of ₹25,000 or the actual tax payable, whichever is lower. Source: cleartax

Meanwhile, a resident individual who chooses the optional old tax regime (opting out of the new regime) and has a taxable income of less than ₹5 lakh can claim a rebate equal to: 

• An amount equivalent to the income tax payable on his total income or Rs 12,500, whichever is lower.

Additionally, under the new tax regime, an extra rebate benefit is available for individuals whose total income slightly exceeds ₹7 lakh. Thus, many middle-class taxpayers find the 87A rebate particularly attractive.

Example to Understand Section 87A Better

Suppose your total taxable income (after all deductions) is ₹4.9 lakh under the old tax regime. Your calculated tax is around ₹12,000.

Under the Old Tax Regime:

• Income Tax Calculation:
  
  • Up to ₹2.5 lakh: Nil
    
  • ₹2.5 lakh to ₹5 lakh: 5% of ₹2.4 lakh = ₹12,000
    

Your total tax payable = ₹12,000.

Since your income is below ₹5 lakh, you are eligible for a rebate under Section 87A of up to ₹12,500 or the actual tax payable, whichever is lower.
Here, you get a rebate of ₹12,000.

Final Tax Payable = ₹12,000 – ₹12,000 = ₹0

Under the New Tax Regime:

Suppose your taxable income is ₹6.8 lakh (no deductions allowed except standard deduction, if salaried).

• Income Tax Slabs (New Regime):
  
  • 0 – ₹3 lakh: Nil
    
  • ₹3 – ₹6 lakh: 5% of ₹3 lakh = ₹15,000
    
  • ₹6 – ₹6.8 lakh: 10% of ₹80,000 = ₹8,000
    

Total tax = ₹15,000 + ₹8,000 = ₹23,000
(plus cess @ 4%: ₹920)
Total tax payable = ₹23,920

Since your income is below ₹7 lakh, you’re eligible for a rebate under Section 87A up to ₹25,000 or the actual tax, whichever is lower.

Rebate = ₹23,920

Final Tax Payable = ₹23,920 – ₹23,920 = ₹0

This ensures low-income earners have zero tax liability under both options if their income falls within the eligible limit.

Key Points You Must Remember About Section 87A

Here are some important things to note:

• The rebate applies only after deductions and exemptions are considered (for the old regime).
  
• Citizens under the age of 60 can claim the benefit under 87A. Seniors above 60 but less than 80 can claim the same benefits. However, those above 80 cannot claim this rebate.
  
• No carry-forward: If your rebate amount exceeds your tax liability, the extra rebate amount won’t be refunded.
  
• It applies only to individual residents, not companies or firms.
  
• The rebate is granted before adding the health and education cess.
  

How do you claim the rebate while filing ITR?

If you’re wondering how to file ITR online and claim the rebate under Section 87A, here’s a quick guide:

1. Log in to the Income Tax e-filing portal(https://www.incometax.gov.in/iec/foportal/).
2. Select the correct ITR form based on your income (for most salaried individuals, it’s ITR-1).
3. Fill your income details correctly, choosing the right regime (old/new). 
4. The system automatically calculates your rebate under Section 87A if you qualify. 
5. Review your Tax Computation before submission to ensure the rebate is reflected. 
6. Verify and submit your return.
   

Section 87A Rebate and Investment Planning

While saving taxes is great, smart individuals also think about wealth creation.
Many experts suggest that if you get maximum benefits under Section 87A and save taxes, you should invest the saved amount wisely.

• Investing in the stock market through a good stock market advisory can help you create long-term wealth.
  
• If you’re comfortable with some risk, you can use those savings to start a SIP (Systematic Investment Plan) in mutual funds or direct equity.
  
• Even safer options like tax-free bonds or public provident funds (PPF) can be good choices if you want assured returns.
  

TCS vs TDS: Does It Affect the 87A Rebate?

A common confusion among taxpayers is about TCS vs TDS (Tax Collected at Source vs Tax Deducted at Source) and whether it impacts their eligibility for the 87A rebate.

Here’s the short answer:

• TDS is the tax your employer or any other deductor deducts on your behalf.
  
• TCS is the tax that sellers collect (e.g., on the sale of a car above a certain amount or foreign remittance) when you purchase certain items.
  

Both TDS and TCS are credits against your final tax liability.  When you file your ITR, you adjust these amounts and check whether your final taxable income is below the threshold to claim the 87A rebate.

Thus, TCS and TDS do not affect your eligibility for the rebate, but you must account for them correctly while filing your returns.

Should You Choose the Old Tax Regime or the New?

If you are specifically planning around the 87A rebate, here’s a quick thought process:

• The old tax regime might still be better if you have many deductions and exemptions (like HRA, 80C, 80D, education loan interest, etc.).
  
• The new tax regime could be a better option if you have minimal deductions and want to benefit from a higher rebate limit (₹7 lakh income level).

Conclusion

Section 87A of the Income Tax Act is a simple but highly effective tool for tax planning, especially for low and middle-income individuals. Whether you choose the old or new tax regime, understanding the 87A rebate rules can save you thousands of rupees annually.

And don’t stop at just saving taxes — take that extra money and invest wisely. Whether it’s the stock market, mutual funds, or safe government-backed instruments, building wealth over time is the key to achieving your financial goals.

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