Section 87A Rebate: Eligibility, Features, Importance, Rules

If you are a resident individual taxpayer in India with a relatively low taxable income, Section 87A of the Income Tax Act can significantly reduce your income tax liability.

The rebate provides tax relief to eligible individual taxpayers, subject to applicable income limits and the tax regime.

This article explains how the rebate is calculated and the eligibility criteria under the old and new tax regimes.

Key Takeaways

• Under the new tax regime for FY 2025-26, resident individuals with taxable income up to ₹12,00,000 can claim a rebate of up to ₹60,000, effectively making their tax liability zero.
• Under the old tax regime, the rebate remains capped at ₹12,500 for taxable income up to ₹5,00,000.
• Marginal relief ensures that taxpayers whose income exceeds the rebate threshold do not face a disproportionate tax jump, capping tax payable at the exact amount of income exceeding the threshold.
• The rebate does not apply to income taxed at special rates, such as long-term or short-term capital gains under Sections 112A and 111A.
• The CBDT administers Section 87A under the Income Tax Act, and it has no regulatory connection to SEBI.

What is the Section 87A Rebate?

Section 87A provides a tax rebate to resident individual taxpayers whose total taxable income falls within a specified threshold. It is applied after computing gross tax liability based on applicable slab rates, but before adding the 4% health and education cess.

Core Rules and Key Features of Section 87A

• Residency Restriction: Available to resident individuals. Non-Resident Indians (NRIs), Hindu Undivided Families (HUFs), partnership firms, and companies are strictly ineligible.
• Direct Tax Reduction and Calculation Order: The rebate reduces calculated income tax, not taxable income, and is applied before adding the 4% Health and Education Cess.
• Regime-Specific Limits (FY 2025–26): Under the new regime, taxable income up to ₹12,00,000 qualifies for a rebate of up to ₹60,000. Under the old regime, taxable income up to ₹5,00,000 qualifies for a rebate of up to ₹12,500. The rebate can reduce eligible tax liability to zero, subject to the applicable exclusions.
• Simplicity and Automated Computation: No separate documentation or complex tax-saving instrument investments are required. Income tax filing utilities automatically compute and apply the rebate based on the selected tax regime and reported taxable income.
• Marginal Relief Provision: Built-in relief ensures that individuals whose income marginally crosses the threshold do not face a disproportionate tax cliff, capping the incremental tax liability at the exact amount of excess income earned.
• Exclusions from Rebate: The Section 87A rebate cannot be offset against special-rate incomes, such as certain capital gains (e.g., short-term or long-term capital gains on equities taxed at special rates) or lottery winnings.

Eligibility and Limits: Old Regime vs New Regime (FY 2025-26)