What is Income Tax Rebate under Section 87A?

2023-11-30

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Rebate u/s 87A was introduced by the Government of India in the year 2013-14. 87A rebate offers benefits from your tax liability. Rebate under section 87A can be claimed when your taxable income does not exceed the prespecified limit for the given financial year. For example, for FY 2025-26(AY 2026-27) if your taxable income is up to ₹12,00,000, then you get a rebate of ₹ 60,000 by claiming the benefit of rebate u/s 87A. Under the new tax regime. Meanwhile, under the old tax regime, the rebate under Section 87A continues to be available for individuals with taxable income up to ₹5,00,000, with a maximum rebate of ₹12,500.

The maximum amount of the 87A rebate has been amended from time to time. In the beginning, the maximum limit of tax rebate under Section 87A of the Income Tax Act was ₹2,000. In the Union Budget, 2016 it was raised to ₹5,000. In the Union Budget, 2017 it was raised ₹2,500, for individuals whose net taxable income was up to ₹3,50,000. Since then, there have been several more amendments that we shall discuss further in this blog.

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What is an Income Tax Rebate?

An income tax rebate can simply be understood as a form of refund on taxes that you receive from the Income Tax Department under certain circumstances. An individual is liable to receive a tax rebate in the event that they pays more taxes in a financial year than they owe to the government. In order to avail a tax rebate, you must make sure to accurately compute your tax liability and file your income tax returns within a particular time period.

When was Section 87A Introduced?

The rebate under Section 87A was first proposed in the year 2013 and has been in effect for several years. Under the latest provisions of Section 87A (under the old tax regime), any individual with an annual taxable income of up to Rs 5 lakhs is eligible for an income tax rebate of Rs12,500. This essentially translates to the fact that individuals with an annual income lower than Rs 5 lakhs are entirely exempted from income tax and can effectively save income tax in India.

From FY 2025-26 onwards, under the new tax regime, individuals with taxable income up to ₹12 lakh are eligible for an increased rebate of ₹60,000 under Section 87A.

Section 87A- Then and Now

It is interesting to note that the income tax rebate offered under Section 87A has undergone a number of changes since its introduction in 2013. However, in recent years, the rebate has been significantly enhanced up to ₹25,000 for incomes up to ₹7 lakhs under the new tax regime, and from FY 2025–26, extended to incomes up to ₹12 lakhs with a rebate of ₹60,000.

How to Claim Tax Rebate under Section 87A?

As per Income Tax Section 87A, you can claim a rebate of ₹12,500 on your tax liability (under the old tax regime). Here are the steps involved to claim this 87A rebate:

Step 1. First, compute your gross total income in the previous financial year
Step 2. From this, subtract all the tax deductions that you have claimed for tax saving investments
Step 3. Now, you’ve arrived at your Gross Total Income after tax deductions. This is your taxable income for the financial year (or previous year)
Step 4. Estimate your gross tax liability on the Gross Total Income, but do not add cess to the amount
Step 5. You can claim the 87A rebate on your gross tax liability before cess and arrive at the net tax liability

From FY 2025–26 onwards, the rebate under Section 87A has been extended to taxable incomes up to ₹12 lakhs under the new tax regime, effectively making the tax payable zero for such incomes.

Rebate u/s 87A for FY 2025-26 (AY 2026-27)

Under Section 87A, the applicable rebate for FY 2025-26 (AY 2026-27) is as follows:

Under the old tax regime: If a resident individual’s total taxable income is up to ₹5,00,000, they are eligible for a rebate of up to ₹12,500, or the actual tax payable, whichever is lower. This rebate brings the net tax liability down to zero.

Under the new tax regime: If a resident individual’s total taxable income is up to ₹12,00,000, they are eligible for a rebate of up to ₹60,000, or the actual tax payable, whichever is lower. This also effectively brings the net tax liability to zero for eligible taxpayers.

Eligibility Criteria to Claim Income Tax Rebate u/s 87A for FY 2025–26 (AY 2026–27)

Here are the eligibility criteria to claim the rebate u/s 87A of the Income Tax Act 1961:

You can claim the 87A rebate only on the gross total tax liability, before adding the health & education cess of 4%
Only the resident individuals shall be eligible to avail of the rebate under section 87A.
Besides, the senior citizens (those who are between 60 and 80 years of age) can claim the rebate under section 87A.
However, the Super senior citizens (those above 80 years of age) are not eligible to avail of the 87A rebate.
The maximum amount you can claim as 87A rebate shall be:

₹12,500 under the old tax regime (for income up to ₹5 lakh), or
₹60,000 under the new tax regime (for income up to ₹12 lakh),
whichever is applicable and lower than the total tax liability before cess

6. Section 87A rebate shall be available under old as well as new income tax regimes. for FY 2025–26 (AY 2026–27).

Example of Calculation of Rebate under Section 87A for an Individual below 60 years of age

Here is an example to show how rebate under section 87A can be calculated for an ordinary individual resident taxpayer for (FY 2025-26):

Particulars	Amount (₹)
Gross Total Income	6,50,000
Less: Deduction u/s 80C	1,50,000
Total Taxable Income	5,00,000
Income-tax (5% on ₹2.5L–₹5L)	12,500
Less: Rebate u/s 87A	12,500
Net Tax Payable	Nil

Rebate u/s 87A for Previous Financial Years

Section 87A was announced by the government from financial year 2013-14. Since then, the maximum amount of the 87A rebate allowed has been amended as under

Financial Year	Limit on Total Taxable Income	Amount of rebate allowed u/s 87A*
2025-26	₹5,00,000 (Old Regime) ₹12,00,000 (New Regime)	₹12,500 ₹60,000
2024-25	₹5,00,000 (Old Regime) ₹7,00,000 (New Regime)	₹12,500 ₹25,000
2023-24	₹5,00,000 (Old Regime) ₹7,00,000 (New Regime)	₹12,500 ₹25,000
2022-23	₹5,00,000	₹12,500
2021-22	Rs. 5,00,000	Rs. 12,500
2020-21	Rs. 5,00,000	Rs. 12,500
2019-20	Rs. 5,00,000	Rs. 12,500
2018-19	Rs. 3,50,000	Rs. 2,500
2017-18	Rs. 3,50,000	Rs. 2,500
2016-17	Rs. 5,00,000	Rs. 5,000
2015-16	Rs. 5,00,000	Rs. 2,000
2014-15	Rs. 5,00,000	Rs. 2,000
2013-14	Rs. 5,00,000	Rs. 2,000

How is Income Tax Rebate Calculated?

To calculate the rebate:

Calculate Gross Income: Add up income from all sources like salary, capital gains, house rent and income from other sources.
Find the Net Taxable Income: Apply deductions under Section 80 to your gross income, as applicable. if you're opting for the old tax regime, as deductions are not allowed under the new tax regime.
Check Eligibility:

If your net taxable income is up to ₹5 lakh under the old tax regime, you can claim a rebate of up to ₹12,500 under Section 87A.
If you fall under the new tax regime and your income is up to ₹`12 lakh for FY 2025-26, you can claim a rebate of up to ₹60,000.

Three Things to Consider about Section 87A

The tax rebate offered under Section 87A can prove to be a great relief to various citizens across the country. However, here are a few points of note that a taxpayer must keep in mind before thinking about saving income tax in India under Section 87A:

This tax rebate under Section 87A cannot be availed by Non Residential Indians, which is NRIs.
The benefits of this tax rebate can also not be availed by Corporations, Firms or HUFs.
Resident senior citizens (60 to below 80 years) can claim this rebate, but Super Seniors (80 years and above) are usually exempt from tax up to ₹5 lakh already and may not need the rebate. However, they technically can claim it if eligible.

Conclusion

The tax rebate offered under Section 87A is certainly a useful means of saving income taxes in India during a financial year. However, it is just important to save taxes with crucial investments such as a life insurance policy that is both tax-saving and financially fruitful.

To avail a trusted life insurance plan to secure your family’s future and save taxes, look no further than Term Plans from Canara HSBC Life Insurance. Term insurance plan provides policyholders with various coverage and payout options as well as an array of useful add-on covers.

Frequently Asked Questions Related to Section 87A

1) Are NRIs also eligible to claim a rebate under Section 87A?

Non-resident Indians are not eligible to claim rebate under this section as only the taxpayers qualified as residents are permitted.

2) How can I calculate rebate under 87A?

To calculate rebate under section 87A, calculate your gross income and subtract the available deductions under Sections 80C to 80U. Now, if your net taxable income is less than Rs. 5 lakhs, you are eligible for the rebate upto Rs 12500 on the tax payable before health and education Cess.

3) Can one claim a rebate under section 87A after they have paid their taxes for a FY?

You can claim for a rebate under Section 87A while filing your tax return, in case you have already paid the taxes.

4) Is 87A rebate available on agricultural income?

Yes, resident individuals earning from agricultural sources can also claim tax rebate u/s 87A.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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