What is Section 87A Tax Rebate and Who Can Claim It?

Section 87A provides a tax rebate that helps reduce or eliminate the income tax liability of eligible resident individuals. Depending on the tax regime selected, taxpayers meeting the prescribed income limits can claim a rebate that significantly lowers their tax outgo. Understanding the eligibility criteria, applicable rebate limits, and situations where the rebate is unavailable can help you calculate your tax liability accurately and file your Income Tax Return (ITR) with confidence.

Section 87A: What Does It Provide?

Section 87A of the Income Tax Act, 1961 provides a tax rebate to eligible resident individuals whose taxable income falls within the prescribed limits. The rebate is applied to the total income tax payable before adding the 4% Health and Education Cess, thereby reducing or even eliminating the taxpayer's final tax liability.

For FY 2025-26 (AY 2026-27):

• Under the new tax regime, eligible taxpayers can claim a rebate of up to ₹60,000, making taxable income up to ₹12 lakh effectively tax-free.
• Under the old tax regime, eligible taxpayers can claim a rebate of up to ₹12,500, making taxable income up to ₹5 lakh effectively tax-free.

Income Tax Act, 2025: Update

The provisions corresponding to Section 87A of the Income Tax Act, 1961, are covered under Section 156 of the Income Tax Act, 2025. However, for income earned up to 31st March 2026 (FY 2025-26), the provisions of the Income Tax Act, 1961 continue to apply.

Understanding the Eligibility for Claiming the Section 87A Rebate

To claim the tax rebate under Section 87A, taxpayers must satisfy the following conditions:

• Only resident individuals are eligible to claim the rebate.
• Taxable income should not exceed ₹12 lakh under the new tax regime.
• Taxable income should not exceed ₹5 lakh under the old tax regime.
• The rebate is restricted to the lower of:

• The maximum rebate prescribed under Section 87A, or
• The total income tax payable before adding Health and Education Cess.

The rebate cannot be adjusted against income that is taxed at specified special rates.

Limits Under New and Old Tax Regimes

The rebate available under Section 87A differs depending on the tax regime chosen. Here are more details on it:

Note: While the new tax regime offers a significantly higher rebate, taxpayers opting for the old regime may still benefit from various deductions and exemptions. Therefore, comparing both regimes before filing your return is advisable.

How Can You Claim an Income Tax Rebate?

Claiming the rebate under Section 87A is a straightforward process if you satisfy the eligibility conditions. Follow these steps:

• Step 1: Calculate your gross total income for the financial year.
• Step 2: Reduce the eligible deductions and exemptions, wherever applicable, to arrive at your taxable income.
• Step 3: Compute your tax liability according to the applicable income tax slabs.
• Step 4: Check whether your taxable income falls within the prescribed limits under your chosen tax regime.
• Step 5: File your Income Tax Return by declaring your income and deductions accurately. If you are eligible, the rebate under Section 87A is generally calculated automatically by the Income Tax portal.

What You Must Know About Claiming a Rebate Under Section 87A?

Before claiming the rebate under Section 87A, it is important to understand certain provisions:

1. Income Where Tax Rebate Cannot Be Claimed

The rebate under Section 87A of the Income Tax Act, 1961, cannot be claimed against income that is taxed at special rates, including:

• Short-term capital gains under Section 111A (renumbered as Section 196 of the Income Tax Act, 2025).
• Long-term capital gains under Section 112A (renumbered as Section 198 under the Income Tax Act, 2025).
• Income taxed at special rates, such as winnings from lotteries, crossword puzzles, game shows, or similar sources.

2. Marginal Relief (New Tax Regime)

The new tax regime also provides marginal relief for taxpayers whose income slightly exceeds ₹12 lakh.

If the additional tax payable is more than the additional income earned above ₹12 lakh, the tax liability is restricted to the amount by which the income exceeds ₹12 lakh. This ensures that a small increase in income does not result in disproportionately higher tax liability.

3. Updates on Rebate in the 2025 Budget

The 2025 Budget enhanced the rebate available under the new tax regime, increasing the maximum rebate to ₹60,000and making taxable income up to ₹12 lakh effectively tax-free for eligible resident individuals.

While the provisions have been incorporated under Section 156 of the Income Tax Act, 2025, taxpayers filing returns for FY 2025-26 can continue to refer to Section 87A of the Income Tax Act, 1961, as the income relates to a period before the new Act comes into force.

Over to You

Understanding the rebate available under Section 87A can help you estimate your tax liability more accurately and choose the tax regime that best suits your financial situation. Reviewing your taxable income before filing your return can also help you determine whether you qualify for the rebate.

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