Section 87A Tax Rebate 2025 — Old Regime and New Regime Rebate Limits Explained

Section 87A provides a rebate directly against the income tax payable — making a large number of individual taxpayers effectively pay zero income tax. The rebate limits differ significantly between the Old Tax Regime and the New Tax Regime. Here is the updated guide for FY 2025-26 (AY 2026-27).

Section 87A Rebate — Old Tax Regime

• Who qualifies: Individual resident taxpayers with taxable income up to ₹5 lakh
• Rebate amount: 100% of income tax payable, subject to a maximum of ₹12,500
• Net result: Zero income tax if taxable income does not exceed ₹5 lakh under old regime

Example: Taxable income ₹4.5 lakh under old regime. Tax at slab rates = ₹12,500. Rebate under 87A = ₹12,500. Net tax = Zero.

Section 87A Rebate — New Tax Regime (Budget 2025)

• Who qualifies: Individual resident taxpayers with taxable income up to ₹12 lakh (under the new tax regime)
• Rebate amount: 100% of income tax payable, subject to a maximum of ₹60,000
• Net result: Zero income tax for income up to ₹12 lakh under the new regime (from FY 2025-26)

This was the landmark Budget 2025 announcement — effectively making income up to ₹12 lakh tax-free under the new regime. With the basic exemption limit of ₹3 lakh under the new regime, the 87A rebate kicks in to eliminate tax on the remaining ₹9 lakh.

Important — 87A Does Not Apply to Special Rate Incomes

The Section 87A rebate is NOT available against:

• Long-term capital gains under Section 112A (LTCG on equity shares/mutual funds) — the LTCG tax of 12.5% above ₹1.25 lakh cannot be offset by 87A rebate
• Short-term capital gains under Section 111A (STCG on equity) — taxed at 20%
• Tax on VDA/crypto income under Section 115BBH — taxed at 30%

This is a common trap — taxpayers with total income below ₹12 lakh but who have LTCG/STCG from stocks still have to pay tax on those special rate incomes.

Surcharge Not Affected by 87A

Section 87A reduces the basic income tax — health and education cess (4%) is applied on the residual tax after the rebate. Surcharge applies only if income exceeds ₹50 lakh, so most 87A claimants are not in surcharge territory anyway.

Conclusion

Section 87A rebate — especially the expanded ₹60,000 rebate under the new regime from 2025-26 — makes income tax zero for a very large number of individuals. SPOTON files ITRs correctly applying the 87A rebate and ensures no over-payment of taxes. Contact us for expert income tax return filing services in Calicut and across Kerala.