Tax Rebate Under Section 87A For FY 2025-26 (AY 2026-27): Eligibility, Limit And Calculation
Tax planning is essential for optimal fiscal management, and one of the most impactful provisions available to Indian taxpayers is the rebate under Section 87A of the Income Tax Act, 1961. This rebate directly reduces your tax liability in many cases, bringing it down to zero.
The Union Budget 2025 brought landmark relief by significantly raising the Section 87A rebate limit under the new tax regime. For FY 2025-26 (AY 2026-27), resident individuals with taxable income up to INR 12 lakh are eligible for a rebate of up to INR 60,000, up from INR 7 lakh and INR 25,000 in the previous year.
This guide covers everything you need to know about the Section 87A rebate, eligibility, calculation, marginal relief, and key exclusions for FY 2025-26.
87A Rebate For Financial Year (FY) 2025-26 And Assessment Year (AY) 2026-27?
For FY 2025-26, if a resident individual's taxable income does not exceed INR 12,00,000, they can claim a rebate of either INR 60,000 or the actual tax payable, whichever is lower, effectively making their tax liability nil.
For salaried individuals, the standard deduction of INR 75,000 further extends this zero-tax threshold to INR 12,75,000 under the new regime.
Under the Old Tax Regime, the rebate structure remains unchanged, resident individuals with taxable income up to INR 5,00,000 can claim a rebate of up to INR 12,500
| Regime | FY 2024-25 (AY 2025-26) | FY 2025-26 (AY 2026-27) |
| Old Tax Regime -Max Income | INR 5,00,000 | INR 5,00,000 |
| Old Tax Regime - Max Rebate | INR 12,500 | INR 12,500 |
| New Tax Regime - Max Income | INR 7,00,000 | INR 12,00,000 |
| New Tax Regime -Max Rebate | INR 25,000 | INR 60,000 |
Note: For salaried individuals under the new regime, the standard deduction of INR 75,000 effectively makes income up to INR 12,75,000 tax-free for FY 2025-26 even though the Section 87A rebate threshold itself is INR 12,00,000
What Are The Steps To Claim Rebate Under Section 87A Rebate In ITR Filing?
Take the following actions to claim the rebate under Income Tax Section 87A:
1. Determine the gross total income you earned in the preceding fiscal year.
2. All claimed tax deductions for investments that save taxes are to be subtracted now.
3. This adjusted income is your taxable income.
4. Estimate your gross tax liability (before adding cess).
5. To your gross tax liability, apply the 87A rebate. However, the rebate will only be applied, subject to the eligibility criteria and within the limits mentioned.
Find more about the Income Tax Filing: How to File ITR Online for FY 2023-24 (AY 2024-25)
What Are The Eligibility Criteria To Claim Income Tax Rebate Under Section 87A For FY 2025-26 (AY 2026-27)?
To claim the Section 87A rebate for FY 2025-26, the following conditions must be met:
- The taxpayer must be a resident individual - NRIs, HUFs, firms, and companies are not eligible.
- Under the new tax regime, taxable income must not exceed INR 12,00,000.
- Under the old tax regime, taxable income must not exceed INR 5,00,000.
- Super senior citizens (80 years and above) filing under the old regime are not eligible, as their basic exemption limit itself is INR 5,00,000.
Critical update for FY 2025-26: As per an amendment introduced in Finance Act 2025, the Section 87A rebate is not applicable on special rate incomes, including:
- Short-Term Capital Gains (STCG) under Section 111A (listed equity, ETFs)
- Long-Term Capital Gains (LTCG) under Section 112A
- Winnings from online gaming, lottery, or Virtual Digital Assets (VDAs/crypto)
This means even if your total income is below INR 12 lakh, the rebate will only apply to tax on normal income, the tax attributable to special rate income must still be paid separately.
Illustration Of Tax Rebate Under Section 87A For FY 2025-26 (AY 2026-27)
Let us consider a number of scenarios: (assuming the taxpayer is an individual who is less than 60 years of age)
| Particulars | Example A | Example B |
| Total Taxable Income | INR 10,00,000 | INR 12,00,000 |
| Tax Before Rebate | INR 50,000 | INR 60,000 |
| Section 87A Rebate | INR 50,000 | INR 60,000 |
| Tax After Rebate | NIL | NIL |
| Health & Education Cess (4%) | NIL | NIL |
| Total Tax Payable | NIL | NIL |
For income exceeding INR 12 lakh, no rebate applies and the full tax liability is payable as per the applicable new regime slabs.
Marginal Relief
For FY 2025-26, marginal relief applies when taxable income is between INR 12,00,001 and INR 12,75,000 under the new regime. In such cases, the tax payable cannot exceed the amount by which income exceeds INR 12 lakh.
Example: Rahul earns INR 12,10,000. His tax liability without marginal relief would be INR 54,000. However, his income exceeds the INR 12 lakh threshold by only INR 10,000. Therefore, his actual tax liability is capped at INR 10,000 (the excess income), not INR 54,000.
Salary Structuring Tips to Maximise 87A Benefits
While 87A helps to minimise the tax burden, investors can still enhance the tax-saving impact by complementing their salary with these tips.
1. Deductions: While the Union Budget 2025 has restricted the use of some deductions, taxpayers can reduce their taxable income by utilising the eligible deductions.
2. Tax-saving investments: Some investments are tax-saving in nature because the returns from them allow restricted taxation. Utilising such investments to restructure the total income can aid in optimal tax planning.
Moreover, a keen takeaway might be a thorough understanding of the evolution of rebates over the years. This can unearth valuable insights and aid in future tax planning.
| Previous Year | Old Regime Income (INR) | Old Regime Rebate (INR) | New Regime Income (INR) | New Regime Rebate (INR) |
| 2016-17 | 3,50,000 | 5,000 | NA | NA |
| 2017-18 | 3,50,000 | 2,500 | NA | NA |
| 2018-19 | 3,50,000 | 2,500 | NA | NA |
| 2019-20 | 5,00,000 | 12,500 | NA | NA |
| 2020-21 | 5,00,000 | 12,500 | 5,00,000 | 12,500 |
| 2021-22 | 5,00,000 | 12,500 | 5,00,000 | 12,500 |
| 2022-23 | 5,00,000 | 12,500 | 5,00,000 | 12,500 |
| 2023-24 | 5,00,000 | 12,500 | 7,00,000 | 25,000 |
| 2024-25 | 5,00,000 | 12,500 | 7,00,000 | 25,000 |
| 2025-26 | 5,00,000 | 12,500 | 12,00,000 | 60,000 |
| 2026-27 | 5,00,000 | 12,500 | 12,00,000 | 60,000 |
Note: Budget 2026 kept the Section 87A rebate unchanged, the INR 12 lakh limit and INR 60,000 rebate cap under the new regime continue for FY 2026-27 as well.
What Are The Things To Remember Before Availing Rebate Under Section 87A?
Here are some things to keep in mind before applying for a rebate u/s 87A:
- Apply the rebate prior to applying for the health and education cess (4%).
You can claim the Section 87A rebate against the tax you owe on different types of income:
- Normal Income: This includes your salary, business income, rental income, etc., which are taxed according to the income tax slab rates.
- Special Rate Incomes (STCG under Section 111A, LTCG under Section 112A, VDA/crypto gains): The Section 87A rebate does not apply to these incomes. Tax on these must be paid at their respective flat rates even if your total income is within INR 12,00,000.
- Normal Income (salary, business income, rental income): The rebate fully applies to tax computed on normal income at slab rates, reducing liability to nil if within the threshold.
Conclusion
Section 87A of the Income Tax Act is important for most taxpayers: it gives resident individuals with low taxable income a lot of tax relief. This rebate can, thus, greatly reduce the tax liabilities for individuals earning up to INR 7,00,000 and even eliminate them.
Taxpayers must understand the eligibility criteria for the rebate under both existing and new tax regimes to make informed decisions maximising their savings.
Utilising benefits from Section 87A could be instrumental in enhancing personal financial plans and ensuring a better future for investors.
To learn more about investment and financial planning, stay tuned to Grip Invest.
Frequently Asked Questions On Section 87A
1. What happens if the income tax refund is above 50000?
The Income Tax Department may scrutinise any tax refund over INR 50,000 more strictly to authenticate and confirm the claimant’s claim. That means that return details could be verified and supporting documents for the claim are necessary.
2. What is the exemption limit for ITR for FY 2025-26 (AY 2026-27)?
The basic exemption limits for FY 2025-26 are as follows:
| Taxpayer Category | Old Regime | New Regime (Default) |
| Below 60 years | INR 2,50,000 | INR 4,00,000 |
| Senior Citizens (60 to 80 years) | INR 3,00,000 | INR 4,00,000 |
| Super Senior Citizens (above 80 years) | INR 5,00,000 | INR 4,00,000 |
If your gross total income exceeds these limits, filing an ITR is mandatory — even if your final tax liability is nil after applying the Section 87A rebate.
3. How is the section 87A rebate calculated?
The Section 87A rebate is calculated as the lower of: (a) your actual income tax liability before cess, or (b) the maximum rebate limit applicable for the year. For FY 2025-26 under the new tax regime, the maximum rebate is INR 60,000 for taxable income up to INR 12,00,000. For example, if your tax liability is INR 45,000, the entire INR 45,000 is rebated and your net tax payable is nil.
If your liability is INR 65,000, only INR 60,000 is rebated and INR 5,000 remains payable (plus 4% cess). Note that the rebate does not apply to special rate incomes such as LTCG under Section 112A or STCG under Section 111A, tax on these must be paid separately.
4. Who is eligible for the 87A rebate?
Section 87A applies exclusively to resident individuals, NRIs, HUFs, and firms are not eligible. For FY 2025-26 under the new tax regime, taxable income must not exceed INR 12,00,000 to claim a rebate of up to INR 60,000. Under the old tax regime, the income limit remains INR 5,00,000 with a maximum rebate of INR 12,500.
Additionally, the rebate cannot be applied against income taxed at special rates, such as LTCG under Section 112A, STCG under Section 111A, or gains from Virtual Digital Assets (VDAs/cryptocurrency).
5. Is the Section 87A rebate available under the new tax regime?
Yes, Section 87A is available under the new tax regime for FY 2025-26 with a significantly enhanced limit. Resident individuals with taxable income up to INR 12,00,000 are eligible for a rebate of up to INR 60,000, effectively making their tax liability nil. For salaried individuals, the standard deduction of INR 75,000 further extends this zero-tax threshold to INR 12,75,000.
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