Tax Rebate Under Section 87A: Updates and Provisions for FY25

As of FY25, about 7.28 crore returns have been filed, and the Income Tax department also increased the deadline to 15th September 2025, to encourage tax filing. The tax rebate under Section 87A further encourages taxpayers with zero tax liability to file ITR in time and claim the rebate. However, it depends on the income threshold and the chosen tax regime. 

Quick Synopsis

• As of FY25 and under the old tax regime, taxpayers earning up to ₹5 lakh can claim a rebate of ₹12,500.
• Under the new tax regime, individuals earning less than ₹7 lakh can claim a rebate of ₹25,000.
• You must choose a tax regime as per your convenience to claim the rebate.

Rebate Under Section 87A for Financial Year 2024-25

Individual taxpayers can enjoy zero tax liability if their income falls under the following threshold:

• ₹7 lakh under the new regime
• ₹5 lakh under the old regime

Note: Finance Minister Nirmala Sitharaman announced that starting from the financial year 2025-26, there will be no taxes on normal income up to ₹12 lakh under the new tax regime. The Budget 2025 proposed an increase in the tax-free income limit for salaried employees to ₹12.75 lakh, where ₹75,000 is the standard deduction under Section 87A.

Rebate Allowed Under Section 87A of Income Tax Act

The rebate amount under Section 87A varies between the new regime and the old regime as follows:

Rebate Under New Regime

Individual taxpayers can enjoy a rebate of the lower of the following amounts if their income threshold is below ₹7 lakh:

• The amount of tax payable on the total income or
• An amount of up to ₹25,000

The Union Budget for FY 2025-26 has provided notable relief to taxpayers by raising the Section 87A rebate to ₹60,000, up from the previous limit of ₹25,000 under the new tax regime.

Rebate Under Old Regime

Under the old regime, if the total income of an individual taxpayer does not exceed ₹5 lakh, he/she can enjoy the lower of the following rebates:

• The amount of income tax payable or
• An amount of ₹12,500

Marginal Relief Allowed on Rebate

If an individual’s annual income exceeds ₹7,00,000 and the tax payable on the excess amount is more than ₹7,00,000, the government imposes a limit on the tax on the excess amount. This is known as marginal relief allowed on rebate under Section 87A.

Here are the steps to calculate marginal relief on rebate:

Step 1: Calculate the excess amount above ₹7 lakh. Let this be assumed to be A (Total income – ₹7 lakh).

Step 2: Calculate income tax liability on the total income and assume it to be B.

Step 3: If B is greater than A, your marginal relief is B - A.

Let us understand the concept of marginal relief with the help of an example: 

Mr X, a 30-year-old resident of India, has a total income of ₹7,15,000, which includes her salary and rental income. The tax liability for AY 2025-26 under the new tax regime is calculated as follows: 

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Eligibility to Claim Rebate 87A

Here are the eligibility criteria to claim a tax rebate under Section 87A:

Depending on the resident type, income threshold, and age, the following are the eligibility criteria to claim a tax rebate under Section 87A:

• Resident Individual: Resident Indians are eligible to claim a tax rebate under Section 87A. However, non-resident Indians, corporations and HUFs (Hindu Undivided Families) are ineligible for rebates under this section. 
• Taxable Income Threshold: After calculation of deductions under several sections, your total annual income should not be more than ₹5 lakh or ₹7 lakh, based on the regime.
• Notably, resident senior citizens between 60 years and 80 years can claim such rebates provided they meet the income threshold.

A Step-by-Step Guide to Claim Tax Rebate U/S 87A

Following the 5-step guide below, claim a rebate while filing your ITR by visiting the official website of the Income Tax department, or click here:

Step 1: Evaluate the gross total income for the financial year.

Step 2: Subtract the tax deductions on investments.

Step 3: Derive the total income after deductions.

Step 4: Ensure you declare accurate gross income and tax deductions in your Income Tax Return.

Step 5: Claim your tax rebate under Section 87A based on the applicable regime.

Important Things to Remember to Avail Rebate U/S 87A

You need to remember the following aspects while claiming a tax rebate under Section 87A:

1. The rebate applies to the total tax before you add a health and education cess of 4%.
2. Notably, the rebate amount will be less than the specified limit under Section 87A or the income tax payable before cess.
3. The tax rebate under Section 87A applies to both old and new tax regimes.

In addition, here are the rebates against other tax liabilities:

• Normal income is taxable at the applicable slab rate.
• Any Long-term capital gain from the sale of capital assets other than listed equity or equity-oriented mutual fund schemes, under Section 112 of the Income Tax Act
• Short-term capital gains on listed equity and equity-oriented mutual fund schemes under Section 111A, before 23rd July 2024, are taxed at 15%.
• Section 112A does not allow a rebate adjustment against long-term capital gains from equity-oriented mutual funds or equity shares.

Final Word

Section 87A offers taxpayers a valuable opportunity to cut down their tax bill, allowing savings of up to ₹12,500 or ₹25,000, depending on the regime chosen for FY 2024-25. The best part? You have the freedom to pick the tax regime that aligns with your income and financial goals, giving you both flexibility and peace of mind while planning your taxes.

However, do not forget to include both your salary and interest income from fixed deposits when checking your rebate eligibility. For those looking to maximise returns, consider booking a fixed deposit with Stable Money partners and earn an attractive 8.40% per annum!