Rebate u/s 87a: A Comprehensive Guide to Claim Tax Rebate

Written by : Knowledge Centre Team

2025-12-15

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While each person knows why and when they need to pay taxes, only a few are aware of the ways they can legally reduce the burden, even to zero, if they act smart enough.

Yes! If you are a taxpayer and would like to create a financial plan that includes rebates in taxes, here is your deal. The rebate u/s 87A is one such way. You can use it to pay little to no income tax if you fall under a specific threshold. Whether you choose the old or the new tax regime, understanding Section 87A before filing an ITR can work wonders. Let us see how the rebate under section 87A is calculated and the best ways to reduce tax liability and maximise savings.

Key Takeaways

As per the old regime of the Income Tax Section 87A 1961, you can claim a rebate of ₹12,500 on your tax liability.
According to the new tax regime, the rebate limit is now ₹60,000 for those with taxable income up to ₹12 lakh.
The rebate 87A is allowed only before adding the health & education cess of 4% on the gross tax liability.
Understanding the old and new tax regimes is essential to make a personalised choice based on your deductions and income limit.
Using a tax calculator to select between the old and the new tax regime can help you make better choices as per your preferences and help you maximise your savings.

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 if they pay more tax 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.

What is Income Tax Rebate u/s 87A?

Rebate under section 87A provides a tax benefit to an individual taxpayer if his total taxable income does not exceed the threshold limit of ₹5,00,000 under the old tax regime. Under the new tax regime, the threshold was ₹7,00,000 for earlier years, and has been increased to ₹12,00,000 for FY 2025-26 (AY 2026-27), subject to the applicable rebate limit.

It means if the total taxable income of any individual exceeds ₹5,00,000 under the old tax regime, or the applicable threshold (₹7,00,000/₹12,00,000, as relevant for the year) under the new tax regime, they will not be able to avail themselves of the tax benefits under section 87A.

When Was Section 87A Introduced?

The rebate under Section 87A was first proposed in 2013 and has been in effect for several years, with key updates in 2019, 2023, and, most recently, in Budget 2025. Under the latest provisions of Section 87A, any individual with an annual taxable income of up to ₹5,00,000 under the old tax regime is eligible for a tax rebate of ₹12,500. This essentially translates to the fact that individuals with an annual income lower than ₹5,00,000 are entirely exempted from income tax and can effectively save income tax in India.

At the same time, under the new tax regime, individuals with an annual taxable income of ₹7,00,000 (for earlier years) were eligible for a rebate of ₹25,000, and from FY 2025-26 onwards, those with an annual taxable income of up to ₹12,00,000 can avail themselves of an enhanced rebate of up to ₹60,000.

Rebate u/s 87A FY 24-25 (AY 25-26)

In both the previous and current income tax structures, the rebate under section 87A for the FY 2021-22, 2022-23, 2023-24 and 2024-25 has remained consistent. However, starting from FY 2023-24, a shift in the tax slab rates in the new tax regime led to a modification in the rebate threshold. Under the previous tax regime, residents with a taxable income of up to ₹5,00,000 are entitled to a tax rebate. Conversely, in the new income tax regime, individuals meeting the residency criteria and having a taxable income of up to ₹7,00,000 were eligible for this tax rebate till FY 2024-25, and from FY 2025-26 onwards, resident individuals with taxable income up to ₹12,00,000 can claim an increased rebate under Section 87A.

Rebate Under the Old Tax Regime:

If you are a taxpayer who would like to stick to the old tax regime, you must learn about the terms for the same. The rebate rules of the old tax regime under Section 87A says that if your total income is up to ₹5 lakh after all Section 80C and 80D deductions, etc., then:

Your maximum rebate amount becomes ₹12,500.
Effective tax liability can be zero if your taxable income is only ₹5 lakh or less.

For example, if your taxable income is ₹4.8 lakh, the tax you are liable for will be ₹11,500. To understand this better, use the following table.

Income slab	Tax rate
Upto ₹2,50,000	Nil
₹2,50,000 - ₹5,00,000	5% above ₹2,50,000
₹5,00,000 - ₹10,00,000	₹12,500 + 20% above ₹5,00,000
Above ₹10,00,000	₹1,12,500 + 30% above ₹10,00,000

But you can claim a rebate of ₹11,500 under Section 87A, reducing your tax to zero.

Rebate Under the New Tax Regime:

The new regime was first introduced in FY 2020-21 but was made the default regime in FY 2023-24 (AY 2024-25). For those opting for the new tax regime, the threshold for the Section 87A rebate is higher for FY 2025-26 (AY 2026-27).

For earlier years (up to FY 2024-25), this was applicable for those with an income threshold of ₹7 lakh, with a maximum rebate amount of ₹25,000, making effective tax liability zero if taxable income was ₹7 lakh or less.
For FY 2025-26 (AY 2026-27), resident individuals with taxable income of up to ₹12 lakh under the new regime are eligible for a higher rebate of up to ₹60,000, ensuring zero tax liability if the tax before rebate does not exceed ₹60,000.

Suppose your taxable income under the new tax regime is ₹11.8 lakh in FY 2025-26 (AY 2026-27). Your calculated tax as per the new slab rates will be up to ₹11.8 lakh; since your taxable income does not exceed ₹12 lakh and the tax before cess is within the rebate cap of ₹60,000, you can claim a rebate under Section 87A equal to the tax amount (up to ₹60,000), making your final tax payable zero.

Income slab	Tax rate (FY 2025-26 (AY 2026-27)
Up to ₹ 4,00,000	Nil
₹ 4,00,001 to ₹ 8,00,000	5%
₹ 8,00,001 to ₹ 12,00,000	10%
₹ 12,00,001 to ₹ 16,00,000	15%
₹ 16,00,001 to ₹ 20,00,000	20%
₹ 20,00,001 to ₹ 24,00,000	25%
Above ₹ 24,00,000	30%

Who is Eligible for the 87A Rebate for FY 2025-26?

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

You can claim the rebate 87A only on the gross total tax liability before adding the health & education cess of 4%.
Only resident individuals are eligible to receive rebates of 87A.
Besides, senior citizens (those between 60 and 80 years old) can claim the rebate under section 87A.
Super senior citizens (80 years and above) are treated as resident individuals; if their taxable income is within the prescribed limits and tax is payable, they may also be able to claim a rebate under Section 87A.
The maximum amount you can claim as an 87A rebate shall be either the limit specified under section 87A or the total tax liability before cess, whichever is lower.
Section 87A rebate shall be available under the old as well as the new income tax regimes. Hence, you can claim the rebate under section 87A for FY 2025-26, with limits of ₹5,00,000 (old regime) and ₹12,00,000 (new regime).

Key Criteria for Old vs New Regime:

Use the table below to carefully understand how the two differ based on the following criteria.

Criteria for FY2025-26	Old Tax Regime	New Tax Regime
Income Limit	₹5 lakh	₹12 lakh
Maximum Rebate	₹12,500	₹60,000
Eligibility	Resident individuals	Resident individuals
Applicable	Before cess	Before cess

Did You Know?

The standard deduction as per the new regime for salaried employees and pensioners is ₹75,000.

Source- incometaxindia.gov.in

Claiming a Tax Rebate Under Section 87A

A rebate of ₹12,500 is allowed on the taxable income of ₹5 lakh under the old regime and ₹60,000 for an income of ₹12 lakh, respectively. The following steps are how you can claim it.

Step 1: Calculate the gross total income of the previous financial year (FY)
Step 2: Apply the tax deductions by subtracting them from the total
Step 3: The amount left is your total gross taxable income for the financial year concerning the previous year
Step 4: Now, you can estimate the gross tax liability as per the tax rates, but make sure to not add the cess amount
Step 5: That’s it; now you can claim your rebate u/s 87A on your gross tax liability before adding the cess

Steps to Claim Rebate in ITR Filing:

Here is the procedure that you need to follow while claiming the rebate u/s 87A.

Step 1: Learn about all your income sources to calculate your gross total
Step 2: Deduct the tax-saving investments that are eligible (if applying under the old regime)
Step 3: Calculate the taxable income after subtracting all deductions
Step 4: Determine all tax liabilities before you add the cess
Step 5: Now, apply the Section 87A rebate as you calculate the final tax payable.

Illustration of Tax Rebate for FY 2025-26 (AY 2026-27):

Take the example of two individuals who are below the age of 60 years to check how the Section 87A rebate is calculated under both tax regimes.

Example 1: Old Tax Regime

Take a man whose taxable income is ₹4.9 lakh after he has already considered deductions under 80C and 80D. Here’s how his rebate would be calculated:

₹2,50,000: No Tax
₹2,50,001 to ₹4,90,000 – 5% Tax on ₹2,40,000 = ₹12,000
Rebate u/s 87A = ₹12,000
Final Tax Payable = ₹0

Example 2: New Tax Regime

Now, take a woman whose taxable income is ₹11.8 lakh as per the new regime. Her rebate would be calculated as follows:

Up to ₹4,00,000: No tax
₹4,00,001 to ₹8,00,000 - 5% tax on ₹4,00,000 = ₹20,000
₹8,00,001 to ₹11,80,000 - 10% tax on ₹3,80,000 = ₹38,000
Total tax before rebate = ₹58,000
Rebate u/s 87A (maximum ₹60,000 for income up to ₹12 lakh) = ₹58,000
Final tax payable = ₹0 (plus 4% cess on zero = ₹0)

Rebate Limits for Each Year:

There have been several reforms regarding Section 87A over the years. You can check them below:

FY 2019-20 to FY 2022-23 (AY 2020-21 to AY 2023-24): The rebate limit was increased to ₹12,500 for those with a taxable income up to ₹5 lakh (old tax regime).
FY 2023-24 (AY 2024-25) onwards: As per the new tax regime, the rebate limit was changed to ₹25,000 for those with taxable income up to ₹7 lakh. Meanwhile, the old tax regime remained the same at ₹12,500 for those with an income of up to ₹5 lakh.
FY 2025-26 (AY 2026-27) onwards: Under the new tax regime, the rebate limit has been enhanced to ₹60,000 for those with taxable income up to ₹12 lakh, whereas the old tax regime rebate remains at ₹12,500 for taxable income up to ₹5 lakh.
As clarified in the latest Income Tax Department booklet on benefits for senior and very senior citizens, the Section 87A rebate is available to all resident individuals who meet the income and tax conditions, including senior citizens (60–80 years) and super senior citizens (80 years and above).

How to Calculate Rebate Under Section 87A for an Individual Below 60 Years of Age?

Here is an example to show how the Section 87A rebate is calculated for an ordinary individual resident taxpayer for FY 2025-26:

Sources of income (FY 2025-26)	Income (₹)
Gross total income	6,50,000
Less: Deduction u/s 80C	1,50,000
Total income	5,00,000
Income-tax (at 5% from ₹ 2.5 to 5 lakh)	12,500
Less: Rebate under section 87A	12,500
Net Tax payable	Nil

This shows that, under the old regime in FY 2025-26, a resident individual with taxable income up to ₹5 lakh still pays no tax due to the ₹12,500 rebate.

Here’s an in-depth example of calculation as per the new tax regime applicable from FY 2025-26:

Assume an ordinary resident individual (below 60) opts for the new regime and has no major deductions (since most are not allowed under the new regime).

Sources of income (FY 2023-24)	Income (₹)
Gross total income	11,80,000
Less: Deduction u/s 80C	0 (not applicable)
Total income	11,80,000
Income-tax	Up to ₹4,00,000: Nil ₹4,00,001 to ₹8,00,000 – 5% on ₹4,00,000 = ₹20,000 ₹8,00,001 to ₹11,80,000 - 10% on ₹3,80,000 = ₹38,000 Total tax before rebate = ₹58,000
Less: Rebate under section 87A	₹58,000 (limited to tax before cess)
Net Tax payable	Nil

Rebate u/s 87A for Previous Financial Years

The provision under Section 87A of the Income Tax Act, 1961, offers a rebate to individual taxpayers whose total income falls below a specified threshold. This rebate effectively reduces the tax liability of eligible taxpayers. However, understanding how this rebate applies to previous financial years is essential for taxpayers who might have missed claiming it in earlier assessments. Below are different FY tax rebates for you to explore:

Financial Year	Limit on Total Taxable Income	Amount of rebate allowed u/s 87A*
2025-2026	New Tax Regime: ₹12,00,000 Old Tax Regime: ₹5,00,000	₹60,000 (new) ₹12,500 (old)
2024-2025	New Tax Regime: ₹7,00,000 Old Tax Regime: ₹5,00,000	₹25,000 (new) ₹12,500 (old)
2023-2024	New Tax Regime: ₹7,00,000 Old Tax Regime: ₹5,00,000	₹25,000 (new) ₹12,500 (old)
2022-2023	₹5,00,000	₹12,500
2021-22	₹5,00,000	₹12,500
2020-21	₹5,00,000	₹12,500
2019-20	₹5,00,000	₹12,500
2018-19	₹3,50,000	₹2,500
2017-18	₹3,50,000	₹2,500
2016-17	₹5,00,000	₹5,000
2015-16	₹5,00,000	₹2,000
2014-15	₹5,00,000	₹2,000
2013-14	₹5,00,000	₹2,000

Things to Consider About Section 87A: Exceptions

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-Resident Indians (NRIs).
The benefits of this tax rebate can also not be availed by Corporations, Firms or HUFs.

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 ouf Term Plans. Our term insurance plan provides policyholders with various coverage and payout options as well as an array of useful add-on covers.

Additional Insights: Tax Saving Plans and Tools

Tax planning is not all about claiming rebates but also about learning what’s best for you. Using the plans and tools effectively can significantly improve your financial future and reduce your tax liability. Here are the two ways to do so.

Top Tax Saving Plans for FY 2025-26:

Section 80C is already there for the old tax regime residents. ELSS funds, or equity-linked savings schemes, offer market-linked returns with slightly higher risk, but there are other ways to save on tax. Traditional ways include investing in PPF and NPS for long-term savings. Moreover, you can get a life insurance plan and secure your family’s future by also saving tax legally. With section 80C deductions, you can save up to ₹1.5 lakhs on your taxable income.

Benefits of Using a Tax Calculator:

People these days use tax calculators to understand what’s best for their financial planning and needs. Here are your three reasons why:

It helps estimate the tax liability and helps determine the rebates instantly
The tax calculator helps you make a personalised choice while picking between the old and new tax regimes
It offers clarity on what other tax-saving opportunities you have on the table

Final Thoughts

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

To avail yourself of 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. A term insurance plan provides policyholders with various coverage and payout options, as well as an array of useful add-on covers.

Glossary:

Effective Tax Liability: The final amount payable to the government after all deductions, exemptions, and rebates have been applied
Health & Education Cess: 4% additional tax on the total income tax payable, used to fund health and education in India
Old Tax Regime: Traditional tax system where individuals claim various deductions and exemptions to reduce their taxable income
New Tax Regime: An Alternative tax system introduced in FY 2020-21. It offers lower tax rates with fewer deductions and exemptions
Section 80C: It allows individuals or HUFs to claim up to ₹1.5 lakh deduction for specified investments

Frequently Asked Questions Related to Section 87A

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

To calculate the 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 ₹5 lakhs as per the old tax regime, you are eligible for a rebate up to ₹12,500 on the tax payable before health and education Cess.

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

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

Rebate under Section 87A is applicable to individuals with taxable income not exceeding the prescribed limit (₹5 lakh under the old regime and ₹7 lakh or ₹12 lakh under the new regime, depending on the financial year). Conversely, a surcharge is imposed on taxable incomes surpassing ₹50,00,000. Consequently, individuals benefiting from this section will never incur a surcharge.

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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