A rebate is a tax benefit given to resident individuals whose income falls within a specified limit. Section 87A of the Income Tax Act offers this relief to taxpayers in the lower income group.

• New Regime (current): Rebate of ₹25,000 for income up to ₹7 lakhs.

• Old Regime: Rebate of ₹12,500 for income up to ₹5 lakhs.

• FY 2025-26 (New Regime update): Rebate increased to ₹60,000 for income up to ₹12 lakhs.

This means that from FY 2025-26 onwards, marginal relief—which earlier applied to income just above ₹7 lakhs—will now apply to income slightly exceeding ₹12 lakhs.

What is Rebate under Section 87A?

Rebate under Section 87A is a tax relief given to resident individuals with middle or low income. It helps reduce their tax liability and, in some cases, removes the need to pay tax completely.

• New Regime: Rebate of ₹25,000 is available if total income is up to ₹7 lakhs.

• Old Regime: Rebate of ₹12,500 is available if total income is up to ₹5 lakhs.

If your income is within these limits, your tax liability becomes zero. The rebate is applied on the total tax before adding the 4% health and education cess.

Eligibility Criteria for Rebate under Section 87A

• Only resident individuals can claim this rebate.

• Rebate is available if total income does not exceed:

  • ₹7 lakhs under the new tax regime

  • ₹5 lakhs under the old tax regime

• The rebate allowed will be the lower of:

  • The maximum limit under Section 87A, or

  • The total income tax payable (before cess).

• Rebate cannot be used to reduce tax on long-term capital gains covered under Section 112A.

• From FY 2025-26 onwards, the rebate will also not apply on incomes taxed at special rates under the Income Tax Act.

How Much Rebate is Allowed Under Section 87A?

👉 New Regime

• For FY 2024-25: If taxable income is up to ₹7 lakhs, a rebate of up to ₹25,000 is available.

• For FY 2025-26: If taxable income is up to ₹12 lakhs, a rebate of up to ₹60,000 can be claimed.

• In both cases, the rebate cannot be more than the total tax payable (before adding cess).

👉 Old Regime

• If taxable income is up to ₹5 lakhs, a rebate of up to ₹12,500 is allowed.

• Here too, the rebate cannot exceed the total tax payable before cess.

Marginal Relief in the New Tax Regime

Marginal Relief on Rebate – FY 2024-25

Under the new regime, if an individual’s income just crosses ₹7 lakhs, the tax payable may suddenly increase. To avoid this burden, marginal relief is provided.

👉 In simple terms:
If the extra tax payable is more than the extra income earned above ₹7 lakhs, then the taxpayer only needs to pay tax equal to that extra income. This adjustment is called marginal relief.

Steps to Calculate Marginal Relief on Rebate:

1. Excess Income (A): Total income – ₹7,00,000

2. Tax Liability (B): Calculate income tax on total income (before rebate).

3. Relief Calculation: If B > A, then rebate under Section 87A = (B – A).

Example:

Mr. Ravi, aged 36 and resident in India, has a total income of ₹7.15 lakhs from salary and bank interest. Under the new regime for AY 2025-26, his tax calculation will show how marginal relief ensures he pays tax only on the ₹15,000 extra income (over ₹7 lakhs), and not more.

How to Claim Income Tax Rebate in FY 2024-25?

You can claim a rebate under Section 87A while filing your Income Tax Return (ITR). Follow these steps:

1. Calculate Gross Total Income – Add up all your income sources for the year.

    

2. Reduce Deductions – Subtract eligible tax-saving investments and deductions (like 80C, 80D, etc.).

    

3. Find Taxable Income – Arrive at your net taxable income after deductions.

    

4. Report in ITR – Enter your gross income, deductions, and other details in the ITR form.

    

5. Claim Rebate – If your taxable income is within the specified limits (₹7 lakhs under the new regime or ₹5 lakhs under the old regime), the rebate under Section 87A will be applied.

✅ Note: The income tax portal automatically calculates the rebate if you are eligible, so you don’t have to claim it separately.

Under the new tax regime, for individuals below 60 years of age in AY 2025-26

Deduction under Section 80C is not available for taxpayers opting for the new tax regime.

Under the old tax regime, individuals below 60 years of age for AY 2025-26 can claim deduction under Section 80C.

You can claim deductions to reduce your taxable income, such as Section 80C for eligible investments and expenses, Section 80D for health insurance premiums, Section 80CCD for contributions to NPS, and Section 80G for donations, along with other allowable deductions.

Rebate Against Various Tax Liabilities

The rebate under Section 87A can be claimed against the following tax liabilities:

• Normal Income: Taxable at regular slab rates.

• Long-Term Capital Gains (LTCG): Covered under Section 112, which applies to gains from the sale of capital assets (other than listed equity shares and equity-oriented mutual funds).

• Short-Term Capital Gains (STCG): On listed equity shares and equity-oriented mutual funds, covered under Section 111A, where tax is charged at a flat rate of 15%.

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