Latest update: 01.02.2023
In the Union Budget 2023, Finance Minister Nirmala Sitharaman announced that the rebate under Section 87A will be hiked from Rs 7 Lakh to Rs12 Lakh for taxpayers under the new tax regime. As per the present proposed Finance Bill 2025, this rebate under Section 87A for the financial year 2025-26 is available up to a total income of ₹12 lakh, which essentially is a rebate on the tax liability of up to ₹60,000 in absolute terms, according to the new slabs and respective tax rates.
It means a tax rebate of Rs 60000/ under section 87A is available under the new tax regime (applicable for FY 2025-26) and persons in the new tax regime, with income up to Rs 12 Lakh will not have to pay any tax.
However, for the financial year 2024-25, as per the the provision of a rebate under Section 87A of the Income Tax Act, taxpayers with a net taxable income of up to Rs 5 lakh in the old tax regime and up to Rs 7 lakh in the new tax regime were eligible for a tax rebate of Rs 12,500 and Rs 25,000 respectively.
Section 87 A under tax regime;
As per the present proposed Finance Bill 2025, this rebate under Section 87A is available up to a total income of ₹12 lakh, which essentially is a rebate on the tax liability of up to ₹60,000 in absolute terms, according to the new slabs and respective tax rates.
The income Tax Department defines section 87A as under;
“An individual who is resident in India and whose total income does not exceed Rs. 12,00,000 under the old regime and Rs.12,00,000 under the new regime is entitled to claim rebate under section 87A. Rebate under section 87A is available in the form of a deduction from the tax liability. Rebate under section 87Awill be lower by 100% of income-tax liability ( Rs. 12,500 or 25000 as the case may be).
To calculate the rebate you need to follow the below steps.
- Calculate your gross total income for the financial year: Add up income from all sources like salary, capital gains, house rent, and income from other sources.
- Find the Net Taxable Income after reducing Standard Deduction amount up to Rs.75000, (if you are a salaried person or a Pensioner from gross income).
- However, for the financial year as per the the provision of a rebate under Section 87A of the Income Tax Act, taxpayers with a net taxable income of up to Rs 5 lakh in the old tax regime and up to Rs 7 lakh in the new tax regime were eligible for a tax rebate of Rs 12,500 and Rs 25,000 respectively. If the income exceeds the above-said amounts taxpayer is not eligible to claim a rebate under section 87 A
Since the announcement of these changes, there has been considerable confusion regarding the tax implications for incomes slightly exceeding the ₹12 lakh limit (after standard deductions for the salaried class). Fortunately, there is good news for resident individuals whose income marginally exceeds this threshold.
Under Section 115BAC(1A) of the Income Tax Act, marginal relief is available exclusively to resident individuals with taxable income just above ₹12 lakh. With marginal relief, taxpayers will not have to pay the full tax amount when their income slightly exceeds the tax-free threshold. This ensures a fair tax burden by preventing sudden spikes in tax liability for small income increases.
To gain deeper insights into what is marginal tax relief for income slightly abov Rs.12 lakh, you may explore the article “MARGINAL TAX RELIEF FOR RESIDENT INDIVIDUALS WITH INCOME SLIGHTLY ABOVE ₹12 LAKH“
File an income tax return declaring your gross income and tax deductions. If your taxable income is within Rs 12 lakh (New tax regime) you will be exempted from paying income tax. Once the rebate is claimed under section 87A, the assessee’s income tax liability automatically becomes nil.
