What is the story about?
Rebate is a form of tax relief given to resident individuals whose income falls in the lower tax brackets. It helps reduce the final tax payable when income is taxed
at the ten per cent slab. Under the new tax regime, individuals earning up to Rs 12 lakh can claim a rebate of as much as Rs 60,000. Under the old tax regime, the rebate is limited to Rs 12,500 for those with income up to Rs 5 lakh. Because of this, people whose income goes just beyond Rs 12 lakh may also get the benefit of marginal relief.
What is Rebate under Section 87A?
Rebate under Section 87A is meant to support low and middle-income taxpayers by lowering their tax burden. It is available only to resident individuals whose income falls within the basic taxable slabs.Under the new regime, a rebate of up to Rs 60,000 is available if total income does not cross Rs 12 lakh. Under the old regime, residents earning up to Rs 5 lakh can get a rebate of up to Rs 12,500.
If a person’s income stays within these limits, they effectively end up paying no income tax. The rebate is applied to the tax amount first, and only after that is the four per cent health and education cess calculated.
Who Can Claim the Rebate?
Only resident individuals are allowed to use the rebate under Section 87A.To qualify, total income should not be more than:
Rs 12 lakh under the new tax regime, and
Rs 5 lakh under the old tax regime.
The rebate amount cannot be higher than the actual tax payable before adding cess. Also, this benefit cannot be used to reduce tax on long-term capital gains covered under Section 112A.
How Much Rebate Is Available under Section 87A?
New Tax RegimeFor FY 2025–26, if a person’s taxable income is up to Rs 12 lakh, they can claim a rebate of up to Rs 60,000. However, the rebate cannot be more than the tax calculated before cess.
Old Tax Regime
If a resident individual’s taxable income is below Rs 5 lakh, they can claim a rebate of up to Rs 12,500. Here too, the rebate cannot exceed the tax payable before cess.
Marginal Relief under the New Tax Regime
For FY 2025–26, marginal relief comes into play when income crosses Rs 12 lakh by a small amount. If the additional tax payable is more than the extra income earned above Rs 12 lakh, the tax is restricted to the amount of income that exceeds Rs 12 lakh.Simply put, a taxpayer will never pay more tax than the extra income earned beyond Rs 12 lakh. This protection is known as marginal relief on rebate.
