Section 87A Rebate Limit for FY 2025-26: History, Updates, Eligibility & FAQs Explained

Section 87A: Tax Rebate for Resident Individuals

Section 87A of the Income Tax Act, 1961, provides a rebate to resident individual taxpayers, effectively reducing their tax liability. Introduced in the Union Budget 2013, the rebate aimed to offer relief to taxpayers with lower to moderate incomes. Over the years, this provision has been adjusted to enhance its benefits.​

Key Updates for FY 2025-26 (Assessment Year 2026-27)

The Union Budget 2025 introduced significant changes to Section 87A, particularly under the new tax regime:​

• Income Threshold Raised: The eligibility limit for the rebate has been increased from ₹7 lakh to ₹12 lakh. This expansion allows a broader segment of taxpayers to benefit from the rebate. ​

• Rebate Amount Increased: The maximum rebate has been enhanced from ₹25,000 to ₹60,000. This means individuals with taxable income up to ₹12 lakh can now reduce their tax liability by up to ₹60,000, potentially bringing their total tax payable to zero.

• Standard Deduction Consideration: For salaried individuals opting for the new tax regime, the standard deduction of ₹75,000 further reduces the taxable income. For instance, with a gross income of ₹12.75 lakh, after applying the standard deduction, the taxable income becomes ₹12 lakh, making the individual eligible for the full ₹60,000 rebate.​

Eligibility Criteria

To qualify for the Section 87A rebate under the new tax regime for FY 2025-26:

• Taxable Income: Your taxable income must not exceed ₹12 lakh.​

• Residency Status: You must be a resident individual taxpayer. Non-resident Indians (NRIs) are not eligible for this rebate.​

• Income Type: The rebate is not applicable to income taxed at special rates, such as long-term capital gains.​

Comparison: New vs. Old Tax Regime

Feature New Tax Regime (FY 2025-26) Old Tax Regime (FY 2025-26)

Income Threshold ₹12 lakh ₹5 lakh

Maximum Rebate ₹60,000 ₹12,500

Standard Deduction ₹75,000

To leverage the Section 87A rebate effectively:​ Income Tax India

• Opt for the New Tax Regime: If your taxable income is ₹12 lakh or less, the new tax regime offers a higher rebate and lower tax rates.​

• Utilize the Standard Deduction: For salaried individuals, the standard deduction of ₹75,000 reduces the taxable income, making you eligible for the full rebate.​

• Plan Investments Wisely: While the new tax regime doesn't allow deductions under sections like 80C, planning your income to stay within the ₹12 lakh threshold can maximize the rebate benefits.​

In conclusion, the enhancements to Section 87A in Budget 2025 provide substantial tax relief to middle-income taxpayers, making it an opportune time to reassess your tax planning strategies.

frequently asked questions (FAQs) related to Section 87A and the 2025 updates:

1. What is Section 87A of the Income Tax Act?

Answer:
Section 87A provides a tax rebate for individual taxpayers who are residents in India. This rebate directly reduces the income tax liability, thereby offering relief to taxpayers with lower to moderate incomes.

2. What is the income threshold for Section 87A in FY 2025-26?

Answer:
For the financial year 2025-26 (Assessment Year 2026-27), the income threshold has been increased to ₹12 lakh. Individuals with a taxable income of ₹12 lakh or less are eligible for the rebate under Section 87A.

3. How much is the maximum rebate under Section 87A for FY 2025-26?

Answer:
The maximum rebate under Section 87A has been increased to ₹60,000 for the financial year 2025-26. This means if your taxable income is ₹12 lakh or less, you can reduce your tax liability by up to ₹60,000.

4. Who is eligible for the Section 87A rebate?

Answer:
To be eligible for the Section 87A rebate:

• You must be a resident individual.

• Your taxable income must not exceed ₹12 lakh.

• You must not be a non-resident taxpayer or a Hindu Undivided Family (HUF).

5. Can I claim Section 87A rebate if I opt for the new tax regime?

Answer:
Yes, the rebate is available under the new tax regime for taxpayers with a taxable income of ₹12 lakh or less. The standard deduction of ₹75,000 for salaried individuals also applies, reducing taxable income further and potentially making you eligible for the full rebate.

6. Is Section 87A applicable to non-salaried income?

Answer:
Yes, Section 87A applies to all types of income, including income from business, profession, or any other source. As long as your total taxable income is ₹12 lakh or below, you can claim the rebate under this section.

7. Does Section 87A rebate apply to income from capital gains?

Answer:
No, the Section 87A rebate is not applicable to income taxed at special rates, such as long-term capital gains, which are subject to different tax rates.

8. How do I calculate my taxable income for the Section 87A rebate?

Answer:
Taxable income is calculated by subtracting deductions from your gross income. If your final taxable income after deductions is ₹12 lakh or less, you are eligible to claim the Section 87A rebate, reducing your income tax liability.

9. Can I claim a Section 87A rebate and other exemptions together?

Answer:
If you are opting for the new tax regime, you cannot claim other exemptions such as those under Section 80C, 80D, etc. However, the Section 87A rebate is directly applied to reduce your tax liability.

10. Can I get a refund if my tax liability is zero after applying the rebate?

Answer:
Yes, if your tax liability becomes zero after applying the Section 87A rebate, you may be eligible for a refund of the taxes already paid during the financial year.

These answers reflect the latest updates and clarify the common doubts surrounding Section 87A and its rebates