This article discusses an important benefit provided by the income tax, which is rebate u/s 87A of the income tax Act.
CA Pratibha Goyal | Feb 6, 2025 |
Income Tax Rebate under Old and New Tax Regime for FY 2025-26
This article discusses an important benefit provided by the income tax, which is rebate u/s 87A of the income tax Act.
With a view to providing tax relief to individual taxpayers who are in a lower tax bracket, a tax rebate is provided under Section 87A.
Conditions for Rebate:
This rebate is available if the following two conditions are satisfied –
Amount of Rebate:
Under both the old and new income tax regimes, the amount of the rebate under Section 87A for FY 2021-22 and FY 2022-23 [(AY (2022-23) and AY (2023-24)] has remained the same. However, the rebate threshold was changed from the financial year 2023-24 & Onwards.
From the financial year 2023-24 and 2024-25 a resident individual with taxable income up to Rs. 5,00,000 is eligible for a tax rebate under the old tax regime, while a resident individual with taxable income up to Rs.7,00,000 is eligible under the new tax regime.
From the financial year 2025-26 and onwards a resident individual with taxable income up to Rs. 5,00,000 is eligible for a tax rebate under the old tax regime, while a resident individual with taxable income up to Rs. 12,00,000 is eligible under the new tax regime.
Let’s understand it elaborately:
If a person has a total taxable income of up to Rs. 12 lakh and chooses the new tax regime, the following rebate they will be eligible for:
A resident individual paying tax under the old tax regime (shifting out of the new tax regime) for the financial year 2025-26 with a total taxable income of less than Rs. 5 lakh would receive a rebate equal to the lowest of the following:
Rebate under Section 87A is not available in the case of a non-resident individual, resident or non-resident HUF/AOP/BOI or any taxpayer other than a resident individual.
Example 1: Tax liability for the Financial year 2025-26 in the case of X (who is a resident individual) in the following situations:
Situation 1 – Net Income: Rs. 3,60,000
Situation 2 – Net Income: Rs. 6,50,000
Situation 3 – Net Income: Rs. 11,00,000
Situation 4 – Net Income: Rs. 13,00,000
X does not want to opt-out from the alternative tax regime under section 115BAC.
| Particulars | Situation 1 | Situation 2 | Situation 3 | Situation 4 |
| Net Income | 3,60,000 | 6,50,000 | 11,00,000 | 13,00,000 |
| Income tax on net income | 0 | 12,500 | 50,000 | 75,000 |
| Less: Rebate under section 87A | 0 | 12,500 | 50,000 | Nil |
| Balance | Nil | Nil | Nil | 75,000 |
| Add: Surcharge | Nil | Nil | Nil | Nil |
| Total | Nil | Nil | Nil | 75,000 |
| Add: Health and education cess @4% | Nil | Nil | Nil | 3,000 |
| Tax Liability | Nil | Nil | Nil | 78,000 |
Example 2: Tax liability for the Financial year 2025-26 in the case of Y (who is a resident individual). His net income (computed under the alternative tax regime under section 115BAC (1A)) is as follows:-
Situation 1 – Net Income: Rs.3,10,000
Situation 2 – Net Income: Rs.6,10,000
Situation 3 – Net Income: Rs.7,00,000
Situation 4 – Net Income: Rs.9,00,000
Y does not opt for the regular tax regime under section 115BAC(6).
| Particulars | Situation 1 | Situation 2 | Situation 3 | Situation 4 |
| Net Income | 3,10,000 | 6,10,000 | 7,00,000 | 9,00,000 |
| Income tax on net income | 500 | 16,000 | 25,000 | 45,000 |
| Less: Rebate under section 87A | 500 | 16,000 | 25,000 | Nil |
| Balance | Nil | Nil | Nil | 45,000 |
| Add: Surcharge | Nil | Nil | Nil | Nil |
| Total | Nil | Nil | Nil | 45,000 |
| Add: Health and education cess @4% | Nil | Nil | Nil | 1,800 |
| Tax Liability | Nil | Nil | Nil | 46,800 |
The provisions of sub-section (1A) of section 115BAC are subject to the other provisions of Chapter XII i.e. determination of tax in certain special cases. Hence, proviso to section 87A clearly provides that tax on incomes chargeable at special rates (for e.g.: capital gains u/s 111A, 112 etc.) as specified under various provisions of Chapter XII, are not included while determining the rebate of income-tax under the first proviso to section 87A.
| Income Chargeable to Tax U/S 115BAC | Special Rate Income (Assuming STCG u/s 111A) | Total Income | Total Tax | Rebate |
| Rs. 12,00,000 | 0 | Rs. 12,00,000 | NTR: Rs. 60,000 | Rs. 60,000 |
| 0 | Rs. 12,00,000 | Rs. 12,00,000 | STCG: Rs. 2,40,000 | 0 |
| Rs. 9,00,000 | Rs. 2,00,000 | Rs. 11,00,000 | NTR: Rs. 30,000 STCG: Rs. 40,000 | Rs. 30,000 |
| Rs. 9,00,000 | Rs. 4,00,000 | Rs. 13,00,000 | NTR: Rs. 30,000 STCG: Rs. 80,000 | Rs. 30,000 |
| Rs. 13,00,000 | Rs. 4,00,000 | Rs. 17,00,000 | NTR: Rs. 75,000 STCG: Rs. 80,000 | 0 |
Please note:
In above Illustrations, Tax Does not include Cess.
The Understanding based on ITR Filing Utilities of FY 2023-24.
Marginal Relief under New Tax Regime – The rebate under section 87A is subject to marginal relief from the assessment year 2024-25. If net income exceeds Rs. 12,00,000 but does not exceed Rs. 1270588, income tax on such income cannot exceed the amount by which the net income exceeds Rs. 12,00,000.
Let us understand this with the below mentioned example:
| Particulars | Income | Tax | Increase In Tax | Increase in Income | Marginal Relief |
| Mr. A | 1200000 | 0 | Tax Liability is Zero due to rebate | ||
| Mr. B | 1210000 | 61500 | 61500 | 10000 | 51500 |
The income of Mr. A is Rs. 1200000. His Tax Liability will be Zero as he is eligible for a Tax Rebate of Rs. 60,000.
The income of Mr. B is Rs. 1210000. His Tax Liability will be Rs. 61500 as he is not eligible for a Tax Rebate.
In Above, Increase in Income is Rs. 10000, but increase in tax is Rs. 61500. Thus increase in income is more than increase in Tax.
Thus Mr. B is eligible for Marginal Relief of Rs. 10000. His Final Tax Liability will be Rs. 10400.
Analysis for Marginal Relief Benefit on Income Tax Rebate u/s 87A is given below.
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