Welcome relief for taxpayers falling in the lower income group. Section 87A of the Income Tax Act, 1961, provides considerable relief by facilitating tax equity and relieving small taxpayers from the burden. This concession allows eligible taxpayers to decrease their payable tax by a certain quantum, reducing their payable tax to zero or even more. The rebate is extended only to resident individuals whose combined income is below a certain limit, as revised regularly by the government. It is crucial that taxpayers know the conditions and terms of Section 87A to be able to make the best out of tax deductions under the law.
Overview of Rebate u/s 87A
Rebate under section 87A provides a tax benefit to an individual assessee if his overall taxable income does not exceed the threshold limit of Rs. 5,00,000 under the old tax structure and Rs. 7,00,000 under the current tax regime for a specified financial year. For the Financial Year 2024-25, a tax reduction of Rs. 25,000 is permitted for earnings amounting to Rs. 7 lakhs under the new system, and a rebate of Rs. 12,500 is granted for income up to Rs. 5 lakhs under the old regime.
The Union Budget of 2025 introduced revisions to Section 87A, which pertains to tax rebates under the Income Tax Act, 1961. Under the new tax regime, resident individuals with assessable income up to Rs. 12 lakh will qualify for a rebate in FY 2025-26 (Assessment Year 2026-27), a substantial rise from the former maximum of Rs. 7 lakh in FY 2024-25 (Assessment Year 2025-26). Such a modification will result in a decrease in tax obligations for tax-compliant individuals and permit persons with incomes in the range of Rs. 12 lakh to actually pay no income tax.
What is the Rebate under Section 87A for FY 2025-26 and AY 2026-27
Section 87A of the Income Tax Act grants a tax allowance to resident individuals with taxable revenue below the prescribed threshold. There has been an increase in the rebate cap under the new tax scheme for the financial year 2025-26, which is Rs. 12 lakh. Individuals with assessable income within this amount are entitled to a rebate or refund of taxes up to Rs. 60,000 or the total tax liability, whichever is lesser. According to the old tax regime, the rebate under Section 87A continues at Rs. 12,500 for an individual with a taxable income of up to Rs. 5 lakh.
The Tax Concession: The Old Tax Regime
- Qualification: Taxable income amounting to Rs . 5,00,000.
- Rebate amount: Rs. 12,500.
- Suitability: Applicable to resident individuals.
- Lowers tax liability: Reduces the income tax due or owed.
The Tax Concession: The New Tax Regime
- Till Rs. 12 Lakhs: Complete tax refund (up to Rs . 60,000)
- Income of Rs. 8 Lakhs: Rs . 20,000 rebate advantage, leading to zero tax
- Income of Rs. 9 Lakhs: Rs. 30,000 rebate advantage, leading to zero tax.
- Income of Rs. 10 Lakhs: Rs. 40,000 rebate advantage, leading to zero tax.
- Income of Rs . 11 Lakhs: Rs. 50,000 rebate advantage, leading to zero tax.
- Income of Rs. 12 Lakhs: Rs. 60,000 rebate advantage, leading to zero tax.
- Income of Rs. 16 Lakhs: Rebate decreases to zero. Rs. 1,20,000 is the tax chargeable subject to the new regime.
How to Seek a Tax Concession under Section 87A?
To claim a tax concession under Section 87A is a straightforward process. It is very important to correctly compute the amount of rebate and to comply with the provisions contained in Section 87A of the Income Tax Act.
Presented below are the measures to track your tax rebate.
Step 1: Compute your gross total income for the last fiscal year.
Step 2: Minus all tax-reducing investments and deductions requested from the gross total income.
Step 3: This deduction results in the gross total income after tax concessions, which is your taxable or assessable income for the earlier year or financial year.
Step 4: Assess your gross tax liability (the taxable income minus all tax reductions) derived from the gross total income, waiving any cess.
Step 5: Apply the rebate under Section 87A to your gross tax liability before cess to determine your net tax liability.
Eligibility Conditions For Claiming Income Tax Rebate As per 87A for FY (2025-26) (Assessment Year 2026-27)
To qualify for the tax concession as per Section 87A, you must fulfill these conditions:
- You should be an Indian citizen and reside in India.
- Your overall taxable income (after deductions or write-offs under Chapter VI, including Section 80C and 80D) must not surpass Rs 5 Lakh, subject to the old tax structure and Rs 12 Lakh according to the new tax structure for FY 2025-26 (AY 2026-27).
- The rebate that is optimal under the old tax regime is Rs. 12,500, and according to the new tax system for FY 2025-26 (AY 2026-27), it is Rs. 60,000.
- If what you owe in tax is lower than the highest rebate amount, your tax owed will decrease to zero.
- Senior citizens aged 60 to 79 are eligible for this rebate.
- Extremely elderly people belonging to the specific age group of 80 and above do not qualify for this rebate.
Procedure to Claim Rebate in ITR Filing under the Provisions of Section 87A
To request a tax rebate under Section 87A for the Financial Year 2025-26 involves the following procedures.
Step 1: Assess your Gross Total Income during the Financial Year 2025-26.
Step 2: Minus any tax deductions that you are entitled to, for instance, life insurance policies, financing, investments, and various instruments to reduce your tax liability.
Step 3: Figure out your total earnings after deducting the tax deductions eligible under the IT Act,1961.
Step 4: Disclose your Gross Income and tax write-offs while submitting your Income Tax Return.
Step 5: After submitting your ITR, you can seek a tax rebate pursuant to Section 87A.
Key Takeaways while Receiving a Rebate under Section 87A
Some points to note for taxpayers while claiming a rebate under Section 87A:
1. Observe all relevant tax laws and regulations when requesting a rebate. This covers your timely filing of ITR, authentic reporting of your income, and correctly implementing the deductions. Non-compliance can result in penalties and may also disqualify you from receiving a rebate.
2. Compute the rebate amount accurately to prevent any inconsistencies during tax filing.
3. Ensure proper documentation of revenues, taxes paid or deducted, and payments to make the filing and redemption of the rebate smooth. This updated documentation will help you file your rebate claim and prove it in case of any audit or information request from tax authorities.
4. Constantly review the eligibility conditions and stay updated on tax laws for optimal tax benefits, and claim the rebate without any hassle every financial year.
5. The Rebate is applied on the total income tax owed, computed before the inclusion of the 4% health and education cess. Calculation of the rebate amount is decided as the lesser of:
- The maximum rebate amount is prescribed as per Section 87A of the Income Tax Act.
- The full amount of income tax payable before the calculation of cess.
6. The Rebate can be demanded against tax obligations resulting from:
- Tax charged on income at slab rates
- Long-term capital gains pursuant to Section 112 of the Income Tax Act, barring returns from listed equity shares and equity-based mutual fund schemes.
7. Tax on short-term capital gains from ordinary shares and stock-based mutual fund schemes as per Section 111A is charged, it is to be based on a rate that is proportional 15%.
8. Tax relief will not apply to long-term capital gain tax on equity shares or share-based mutual funds. This is provided for under Section 112A of the Income Tax Act.
Summing Up
Section 87A provides a significant tax concession to individual taxpayers who are in income brackets with regular income. The rule provides tax relief to qualifying individuals and enhances tax compliance and assistance for them. Manage their money better. If you owe money to the state, you can still benefit from Section 87A by following the set rules. Make the most of these opportunities to get your finances in better shape and secure your future.
