Income Tax Rebate under Section 87A (Income Tax Act 2025)
Section 87A of the Income Tax Act, 2025, continues to provide significant tax relief to resident individuals with lower incomes. This rebate aims to reduce or even eliminate the tax liability for eligible taxpayers, making the tax system more equitable.
Eligibility Criteria for Section 87A Rebate (IT Act 2025)
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Resident Individual
Only individuals who are residents of India are eligible. Hindu Undivided Families (HUFs), firms, Limited Liability Partnerships (LLPs), and companies cannot claim this rebate.
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Age Criteria
Applicable to individuals below 80 years of age. Super Senior Citizens (80+ years) are not eligible as they benefit from higher exemption limits.
Net Taxable Income Limits (FY 2024-25 / AY 2025-26)
| Tax Regime | Maximum Net Taxable Income | Maximum Rebate Amount |
|---|---|---|
| Old Tax Regime | Up to ₹5,00,000 | Lower of 100% of tax liability or ₹12,500 |
| New Tax Regime (Default) | Up to ₹7,00,000 | Lower of 100% of tax liability or ₹25,000 |
How to Claim Section 87A Rebate
1
Calculate Gross Total Income (GTI)
Determine your total income from all sources before any deductions.
2
Apply Chapter VI-A Deductions
Reduce your GTI by eligible deductions under sections 80C to 80U to arrive at Net Taxable Income.
3
Compute Tax Payable
Calculate your income tax liability based on the applicable tax slabs for your chosen regime (Old or New).
4
Determine Rebate Amount
If your Net Taxable Income is within the specified limits (₹5 lakhs for Old Regime, ₹7 lakhs for New Regime), the rebate will be the lower of your calculated tax liability or the maximum allowed rebate (₹12,500 for Old, ₹25,000 for New).
5
File Income Tax Return (ITR)
The rebate is automatically applied when you file your ITR, reducing your final tax payable.
Important: The rebate is automatically claimed when filing your Income Tax Return. If your income after Chapter VI-A deductions is below the threshold, you can claim a full tax rebate. If Tax Deducted at Source (TDS) has been deducted, you may receive a refund up to the rebate amount.
Regime-Specific Rebate Provisions (AY 2025-26)
Old Tax Regime
Applicable to: Resident Individual
Condition: Total income does not exceed ₹5,00,000.
Quantum of Rebate: Lower of:
- 100% of the tax liability
- ₹12,500
New Tax Regime (Section 115BAC)
Applicable to: Resident Individual
Condition: Total income does not exceed ₹7,00,000.
Quantum of Rebate: Lower of:
- 100% of the tax liability
- ₹25,000
Case Study: Rebate Calculation
Solution:
First, calculate Mr. Sridhar’s Net Taxable Income (TTI):
| Particulars | Amount (₹) |
|---|---|
| Gross Total Income | 4,80,000 |
| Less: Deductions u/s 80C | (50,000) |
| Net Taxable Income (TTI) | 4,30,000 |
Next, calculate the tax liability under the Old Regime:
| Income Slab | Tax Rate | Tax Amount (₹) |
|---|---|---|
| Up to ₹2,50,000 | Nil | 0 |
| ₹2,50,001 to ₹4,30,000 (₹1,80,000) | 5% | 9,000 |
| Total Tax Liability (before rebate) | 9,000 |
Since Mr. Sridhar’s Net Taxable Income (₹4,30,000) does not exceed ₹5,00,000, he is eligible for rebate under Section 87A.
Rebate u/s 87A: Lower of (Tax Liability or ₹12,500) = Lower of (₹9,000 or ₹12,500) = ₹9,000
Net Tax Payable: ₹9,000 (Tax Liability) – ₹9,000 (Rebate) = Nil
Rebate Against Various Tax Liabilities
Section 87A rebate can be claimed against tax liabilities arising from:
- Normal income taxed at slab rates.
- Long-term capital gains under Section 112 (on sale of capital assets other than listed equity shares and equity-oriented mutual funds).
- Short-term capital gains on listed equity shares and equity-oriented mutual funds under Section 111A, taxed at a flat rate of 15%.