The Union Budget updated Section 87A of the Income Tax Act to offer significant relief to middle-income taxpayers. Under the New Tax Regime, individuals earning up to ₹12 Lakh per year can benefit from a full rebate, reducing their net income tax liability to zero.
What is Section 87A Tax Rebate?
Section 87A is a statutory provision under the Income Tax Act, 1961, designed to reduce the tax burden on individuals falling within lower income brackets. If your total taxable income (after standard deductions) falls below the legal threshold, you are entitled to claim a rebate equal to 100% of your calculated income tax, or up to the specified capping limits.
New Regime Thresholds vs. Old Regime
The rebate rules operate differently depending on the tax regime chosen for FY 2025-26 (AY 2026-27):
- New Tax Regime (Default): Taxable income up to ₹12,000,000 (after a standard deduction of ₹75,000) qualifies for a full rebate. This means individuals earning a gross salary of up to ₹12.75 Lakh can effectively pay zero tax.
- Old Tax Regime: The rebate threshold remains capped at ₹5,00,000. Individuals earning above ₹5 Lakh under the Old Regime cannot claim the Section 87A rebate.
How is the Rebate Computed?
If your taxable income is ₹11,500,000 under the New Regime:
- Apply standard tax slabs (first ₹3 Lakh is nil, 3-6 Lakh is 5%, 6-9 Lakh is 10%, 9-12 Lakh is 15%).
- Your calculated gross tax before cess would be ₹15,000 (from 5% slab) + ₹30,000 (from 10% slab) + ₹37,500 (from 15% slab) = ₹82,500.
- Because your income is below the ₹12 Lakh threshold, Section 87A provides a rebate equal to ₹82,500, making your net payable tax ₹0.