Section 87A Rebate Explained (2024-25): Eligibility, Limit And How To Claim
Tax planning is essential for optimal fiscal planning. Utilisation of prevalent tax relief measures, such as deductions and rebates, is key. One such provision that aids in minimising tax liability is the 87A rebate. The tax rebate under Section 87A provides a tax credit or tax refund based on specific eligibility criteria.
Understanding and staying updated with the recent 87A income tax rebate structure is crucial since it often changes through the Union Budgets. Therefore, this blog acts as the ultimate guide for the Previous Year 2024-25 while delivering key insights into the Budget 2025 87A rebate changes.
However, before exploring the Budget 2025 impact on the 87A rebate, let us explore the rebate applicable to FY 2024-25.
87A Rebate For Financial Year (FY) 2024-25 And Assessment Year (AY) 2025-26?
For FY 2024 to 25, the 87A rebate structure given in the Union Budget 2024 acts as the new tax regime. According to the 87A rebate in new regime, if a taxpayer’s annual earnings are not more than INR 7,00,000, they can claim back some of their taxes as per the Income Tax Act, 1961. Simply put, any Indian resident whose income is below INR 7,00,000 can get a rebate of either INR 25,000 or the amount of tax to be paid by them, whichever is lower.
On the other hand, under the Old Tax Regime, this figure was set at INR 5,00,000 and had a rebate ceiling of INR 12,500. The table below summarises the 87A income tax rebate for FY 2024-25.
| Regime | Maximum Annual Earnings (INR) | Rebate (INR) |
| New | 7,00,000 | 25,000 |
| Old | 5,00,000 | 12,500 |
Let's take an example to understand the 87a income tax rebate calculation under each of these regimes.
| Particulars | New Tax Regime | Old Tax Regime |
| Total Taxable Income | 7,00,000 | 5,00,000 |
| Tax Rate | 5% | 5% |
| Tax Liability Before Rebate | 35,000 | 25,000 |
| Tax rebate under Section 87A | 25,000 | 12,500 |
| Tax Liability After Rebate | 10,000 | 12,500 |
| Education Cess (4% on tax liability) | 400 | 500 |
| Total Tax Liability After Rebate and Cess | 10,400 | 13,000 |
Now that we are aware of the 87A rebate in the new tax regime and old regime, let us also explore the 87A rebate regime laid down by the Union Budget 2025.
FY2025-26 Changes And 87A Rebate Comparison: Old vs New Tax Regime
The Union Budget brought significant relief to the taxpayers as it moved to make income up to INR 12,00,000 exempted. The relief is greater for salaried citizens, as the exemption increases to INR 12,75,000. Amongst this, the tax rebate under section 87A has also been enhanced. However, the 2025 Budget 87A income tax rebate is applicable from FY 2025-26. The table below compares the 87A rebate in new tax regime with others.
| Regime | Tenure | Maximum Income (INR) | Rebate (INR) |
| Old | FY 2024-25 | 5,00,000 | 12,500 |
| New (Budget 2024) | FY 2024-25 | 7,00,000 | 25,000 |
| New (Budget 2025) | FY 2025-26 | 12,00,000 | 60,000 |
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 2024-25 (AY 2025-26)?
1. This allowance only applies to residents; non-residential Indians (NRIs), Hindu Undivided Families (HUFs) or firms are not covered by this provision.
2. The earnings for a taxpayer should not exceed seven hundred thousand rupees within twelve months in case of the new tax regime and it should not exceed five hundred thousand rupees in case of the old tax regime.
3. Under the old tax regime, super senior citizens (those who are 80 years of age or older) are not eligible (since their basic threshold limit is INR 5,00,000).
While claiming a rebate under Section 87A can reduce your tax liability, smart investments can further optimize your savings.
Illustration Of Tax Rebate Under Section 87A For FY 2024-25 (AY 2025-26)
Let us consider a number of scenarios: (assuming the taxpayer is an individual who is less than 60 years of age)
Old Tax Regime | New Tax Regime | |||||
Taxable Income | Tax Liability | Rebate Under Section 87A | Tax Liability After The Rebate | Tax Liability | Rebate Under Section 87A | Tax Liability After The Rebate |
| INR 5,00,000 | INR 12,500 | INR 12,500 | NIL | INR 10,000 | INR 25,000 | NIL |
| INR 7,00,000 | INR 52,500 | Not applicable | INR 52,500 | INR 20,000 | INR 25,000 | NIL |
| INR 10,00,000 | INR 1,12,500 | Not applicable | INR 1,12,500 | INR 50,000 | Not applicable | INR 50,000 |
For simplicity purposes, the calculations do not take into account any deductions claimable under each of the tax regimes.
Marginal Relief
Before exploring marginal relief, imagine Mr A earns a total income of INR 7,02,000. His income is only INR 2,000 more for FY 2024-25. Technically, his income is above the exemption limit, even if it is just INR 2,000.
Therefore, should he pay tax on the entire amount of INR 7,02,000?
Here comes marginal relief to the aid of Mr A and other taxpayers like him. Marginal relief allows tax relief when your total income slightly exceeds the exemption limit. Let’s understand the marginal relief for the 87A rebate in new tax regime for both FY 2024-25 and FY 2025-26
1. FY 2024-25
If the annual income exceeds INR 7,00,000 (exemption limit) and the extra tax payable does not go beyond the sum by which the income exceeds the exemption limit, a rebate amounting to the difference between extra tax and extra income will be applicable.
Suppose Mr B earns INR 7,15,000. Let’s figure out how marginal tax operates.
Income over the exemption limit = INR 15,000
Total tax due before health and education cess = INR 21,500
Since the extra tax payable (INR 21,500) is more than the amount by which the total income exceeds the exemption (INR 15,000),
Rebate = INR (21,500 - 15,000) = INR 6,500.
2. FY 2025-26
For FY 2025-26, in the case of the new regime, the tax due cannot be greater than the additional income beyond INR 12 lakh if the taxable income remains within INR 12 lakh and INR 12.75 lakh.
For example, if Mia earns INR 12,10,000, her tax liability without marginal relief would be INR 54,000. It is more than her excess income of INR 10,000 above the exemption limit. Therefore, she can use marginal relief to make her tax liability INR 10,000 (excess income over the exemption limit).
The process of claiming marginal relief is ingrained in the process of claiming a rebate. Therefore, it is important to use a detailed step-by-step guide on the various steps involved in claiming a rebate.
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.
| Old Regime | New Regime | |||
| Previous Year | Income (INR) | Rebate (INR) | Income (INR) | 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 |
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.
- Long-Term Capital Gains (Section 112): This is the profit you make from selling assets you've held for a long time. These assets can be anything except listed equity shares (stocks) and equity mutual funds. The tax on these long-term capital gains can be reduced by the Section 87A rebate.
- Short-Term Capital Gains on Listed Equity Shares and Equity-Oriented Mutual Funds (Section 111A): This is the money you make when you sell stocks or mutual funds that you haven't owned for very long. The 15% flat tax on these gains can be lowered by utilising the Section 87A rebate.
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 the assessment year 2024-25 i.e., the financial year 2023-24, here is an exemption limit for filing of ITR:
- Individuals Below 60 Years: INR 2,50,000
- Senior Citizens (60 to 80 Years): INR 3,00,000
- Super Senior Citizens (Above 80 Years): INR 5,00,000
These limits represent the maximum income below which individuals are not required to file an ITR. But once the amount surpasses these limits they must file for it.
3. How is the section 87A rebate calculated?
For optimal financial planning, tax preparation is crucial. The 87A refund is a clause that helps to reduce tax liabilities. A tax credit or refund under Section 87A is given following certain qualifying requirements. Calculation of 87A depends on the tax regime chosen by the taxpayer. For instance, under the new regime applicable to FY2024-25, the rebate amount is INR 25,000 if the income falls below INR 7 lakhs.
4. Who is eligible for the 87A rebate?
87A applies to residents only. Non-resident Indians (NRIs), Hindu Undivided Families (HUFs) or firms are not covered by this provision. Moreover, the earnings for a taxpayer should not exceed seven lakh rupees within twelve months in case of the new tax regime, and it should not exceed five lakh rupees in case of the old tax regime.
5. Is the Section 87A rebate available under the new tax regime?
Section 87A is applicable for the new tax regime of FY 2025-26 as well. For FY 2025-26, in the case of the new regime, the tax due cannot be greater than the additional income beyond INR 12 lakh if the taxable income remains within INR 12 lakh and INR 12.75 lakh.
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