The Union Budget 2025 included significant revisions to Section 87A of the Income Tax Act for taxpayers. This rebate reduces resident tax payment if taxable income is within limitations.

Significant changes were made for FY 2025-26 (AY 2026-27), notably under the new tax structure. Our guide covers the new refund, eligibility, calculating process, and how taxpayers may optimize advantages.

What Is an Income Tax Rebate?

An income tax rebate directly dominates the tax liability for qualifying taxpayers, alleviating their financial encumbrance. Tax deductions diminish taxable income, but refunds cut tax liability.

Section 87A reimburses Indian taxpayers earning less than specific criteria under the Income Tax Act. Individuals filing taxes up to ₹12 lakh in FY 2025-26 (AY 2026-27) are eligible for a ₹60,000 tax rebate.

Under the former tax structure, individuals earning up to ₹5 lakh were entitled for a ₹12,500 rebate.

This rebate reduces middle-income tax burdens, promotes compliance, and boosts savings. Qualified taxpayers pay no tax after applying for the rebate since it is applied before the 4% Health & Education Cess.

Also Read - Income Tax slab in india for AY 2024-25

Key Highlights for FY 2025-26

• Income Tax Reforms: Section 87A offers a larger refund, and the new system exempts ₹12 lakh from income taxes.
  
  
• Corporate Tax Cut: Reduced tax for MSMEs to boost business growth.
  
  
• Infrastructure Boost: ₹11.21 lakh crore allocated for roads, railways, and smart cities.
  
  
• Healthcare & Education: More medical seats, scholarships, and disease prevention programs.
  
  
• Agricultural Support: Credit expansion, modern farming incentives, and crop diversification.
  
  
• Fiscal Deficit: Cut to 4.4% of GDP to a more stable economy.
  
  
• Viksit Bharat 2047 Vision: Self-reliance driven by economic reforms would propel long-term development.

What is the Section 87A rebate for FY 2025-26 and AY 2026-2027

Section 87A rebate of the 2025-26 financial year (2026-27 assessment year) enables resident individuals to claim tax refunds based on their specified income range. Taxpayers who earn up to ₹12 lakh will obtain a tax refund of ₹60,000 under the current tax arrangement. Under the former tax system, the refund stayed ₹12,500 for incomes up to ₹5 lakh. This refund encourages compliance and helps individuals in the middle class reduce their tax load. Reducing tax obligation and guaranteeing financial relief for qualified taxpayers depends much on Section 87A.

What Are Examples of Rebates under Section 87A

Here are some examples of Rebates under Section 87A:

What Are The Tax Slab Rate For FY 2025-26

Here are some examples of the Tax Slab Rate For FY 2025-26 (AY 2026-2027) As Per Union Budget 2025:

What is the Tax Rebate Under the Old Tax Regime?

• Eligibility: Taxable income up to ₹5,00,000.
  
  
• Rebate Amount: Maximum rebate of ₹12,500 under Section 87A.
  
  
• Applicability: Available only for resident individuals.
  
  
• Reduces Tax Liability: Ensures zero tax liability if income is within the threshold.

What is the Tax Rebate Under the New Tax Regime?

• Up to ₹12 Lakhs Income: Full tax rebate (up to ₹60,000), resulting in zero tax.
• ₹8 Lakhs Income: ₹20,000 rebate benefit, tax payable is zero.
• ₹9 Lakhs Income: ₹30,000 rebate benefit, tax payable is zero.
• ₹10 Lakhs Income: ₹40,000 rebate benefit, tax payable is zero.
• ₹11 Lakhs Income: ₹50,000 rebate benefit, tax payable is zero.
• ₹12 Lakhs Income: ₹60,000 rebate benefit, tax payable is zero.
• ₹16 Lakhs Income: No rebate available; tax payable is ₹1,20,000.

Eligibility Criteria for Claiming Rebate under Section 87A (FY 2025-26, AY 2026-27)

Section 87A of the Income Tax Act provides qualified taxpayers with tax refunds to reduce their tax liabilities. The tax refund eligibility for FY 2025--26 (AY 2026--27) depends on individuals' conditions.

1. A resident individual

   Only resident individuals can claim this tax rebate. Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs), together with businesses, do not qualify for the tax refund.

2. Income Threshold

   New Tax Scheme: Taxable income shouldn't be more than ₹12 lakh. Claiming a maximum refund of ₹60,000, eligible taxpayers can zero their tax obligation.

   Old Tax Regime: To guarantee zero tax paid, taxable income should not be more than ₹5 lakh and qualify for a refund of ₹12,500.

3. Rebate Calculation

   The rebate is applied before adding the 4% Health & Education Cess.

4. Exclusion of Special Rate Income

   The 87A refund cannot be claimed by taxpayers receiving capital gains, lottery wins, or other special-rate revenues.

Middle-class taxpayers gain from this refund, which motivates them to select the optimum tax code for best savings. Under the revised tax system, it is especially important for guaranteeing financial relief, lower total tax obligation, and encourage compliance. 

Also Read - GST State Code List & Jurisdiction Details

How to Claim Section 87A Rebate in ITR? (FY 2025-26, AY 2026-27)

Claiming the Section 87A rebate while filing your Income Tax Return (ITR) is simple. Follow these steps to ensure you avail the benefit correctly:

Step 1: Determine Eligibility

Ensure you are a resident individual with taxable income within the rebate limit:

• New Tax Regime: Income up to ₹12 lakh (₹60,000 rebate).
• Old Tax Regime: Income up to ₹5 lakh (₹12,500 rebate).

Step 2: Compute Total Taxable Income

• Calculate gross total income from salary, business, house property, and other sources.
• Deduct eligible exemptions/deductions (if applicable under the old regime).

Step 3: Apply Tax Slabs & Compute Tax

Calculate income tax based on the applicable slab rates for the chosen tax regime.

Step 4: Claim Rebate in ITR

The Income Tax Return (ITR) form demands entry of Section 87A rebate quantities before the Health & Education Cess addition of 4%.

The rebate will eliminate all tax liability automatically if it exceeds the amount required for tax payment.

Step 5: Verify & Submit ITR

Review your return, e-verify, and submit it on the Income Tax e-filing portal.

Example of Tax Rebate Under Section 87A for FY 2025-26 (AY 2026-27)

The Section 87A refund applies differently for various income levels in FY 2025-26 as shown here:

Applicable Tax Liabilities under Section 87A

Tax obligation is the total tax a person must pay on taxable income. A refund from Section 87A decreases the ultimate tax bill for qualifying taxpayers.

For FY 2025-26 (AY 2026-27):

• New Tax Regime: Those with up to ₹12 lakh in taxable income can receive a ₹60,000 refund, therefore rendering their tax payment nil.
• Old Tax Regime: Zero tax payable results from taxpayers earning up to ₹5 lakh qualifying for a refund of ₹12,500.

However, capital gains, lottery winnings, and other special-rate incomes do not qualify for this rebate. The rebate is applied before adding the 4% Health & Education Cess, ensuring that eligible taxpayers owe no tax after the rebate. This benefit helps middle-income individuals save tax and encourages compliance under the updated tax structure. 

Also Read - What is the minimum turnover for GST?

Frequently Asked Questions

1. Who is eligible for an 87A rebate?

Residents claiming the rebate might have taxable income up to ₹12 lakh (new regime) or ₹5 lakh (old regime). Not qualified are NRIs, HUFs, and businesses.

2. What is the 87A rebate for FY 2025-26?

The Section 87A maximum refund amounts to ₹60,000 for the new regime and ₹12,500 for the old regime, making income tax obligations null.

3. What is the tax rebate for 2025-26?

According to the new tax system taxpayers get a ₹60,000 income tax refund when their annual income reaches ₹12 lakh but the previous scheme granted only ₹12,500 tax rebate for incomes below ₹5 lakh.

4. How is the Section 87A rebate calculated with an example?

The tax payable is zero if a taxpayer under the new regime has a taxable income of ₹10 lakh, as the calculated tax is ₹40,000. This amount is entirely covered by the 87A rebate.

5. How is ₹7 lakh income tax-free?

Under Section 87A of the new tax system, incomes up to ₹7 lakh qualify for a ₹25,000 rebates, therefore guaranteeing 0% tax burden.

6. Who is eligible for an 87A rebate?

Only resident individuals with taxable income under the rebate limit qualify. NRIs, firms, and companies cannot claim this rebate.

7. How does the Section 87A rebate calculator work?

The rebate is applied after tax calculation but before cess. Tax is calculated as per slabs, and if it falls under the rebate limit, it is reduced accordingly.