Rebate Under Section 87A Income Tax in India FY 2025-26

Rebate Under Section 87A Income Tax in India FY 2025-26

Are you eligible for the rebate under section 87A in FY 2025-26? This guide explains everything about income tax rebate, the eligibility criteria, limits under the new and old tax regimes, and how to claim your refund. We will cover 87A rebate in new tax regime, maximum rebate limits, income thresholds, and examples for salaried and self-employed taxpayers. You will also learn about applicable deductions like 80C, 80D, and other exemptions that can affect your rebate. Step-by-step instructions for filing, calculating, and claiming the rebate are included to ensure a smooth process. This comprehensive guide is designed for both beginners and experienced taxpayers to help them avoid mistakes and maximize tax benefits.

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What is Section 87A Rebate in Income Tax?

The rebate under section 87A is a tax benefit provided to individual taxpayers in India. It allows eligible taxpayers to reduce their total income tax liability up to a certain limit. This rebate is available under both the new and old tax regimes, but the eligibility and limits vary depending on your total taxable income and deductions claimed.

Key Features of Section 87A

• Applicable to resident individuals only.
• Maximum rebate limit in FY 2025-26 is Rs 12,500 for income within Rs. 5 lakh under the old regime for eligible taxpayers
• Maximum rebate limit in FY 2025-26 is Rs 60,000 for income within Rs. 12 lakh under the new regime for eligible taxpayers
• Eligibility depends on total taxable income after deductions.
• Available under both old and new tax regimes.
• Helps in reducing tax liability and increasing refunds.

Eligibility Criteria for 87A Rebate

To claim the rebate under section 87A, taxpayers must satisfy the following conditions:

• Must be a resident individual in India.
• Total taxable income after deductions must not exceed Rs 5 lakh in FY 2025-26 under old regime
• Total taxable income after deductions must not exceed Rs 12 lakh in FY 2025-26 under new regime
• Rebate is not available to HUFs, companies, LLPs, or firms.
• Both salaried and self-employed individuals can claim the rebate.
• Applicable deductions like 80C, 80D, and 80G reduce taxable income, which can help qualify for the rebate.

New vs Old Tax Regime and 87A Rebate

The 87A rebate in new tax regime differs slightly from the old regime in terms of deductions and exemptions. While the new regime offers lower tax rates, it restricts most deductions. Here's a comparison:

Why Section 87A Rebate Matters

Claiming this rebate is important because it can save you money on taxes and increase your refund. For middle-income earners, especially those with taxable income close to Rs 5 lakh, this rebate ensures that you do not pay excess tax. Additionally, understanding 87A helps in planning investments and deductions strategically to maximize tax savings.

Example of Rebate Calculation

Let's assume a resident individual with a taxable income of Rs 4.8 lakh in FY 2025-26 under the old regime:

1. Total taxable income: Rs 4,80,000
2. Tax liability (old regime rates): Rs 11,500
3. Eligible 87A rebate: Rs 11,500
4. Final tax payable: Rs 11,500 - Rs 12,500 = Rs 0

This example shows how the rebate directly reduces your tax liability.

Steps to Claim 87A Rebate

Claiming the rebate is straightforward if you follow these steps:

1. Check your total taxable income after all deductions.
2. Ensure you are a resident individual.
3. Fill in the rebate details in your Income Tax Return (ITR) form.
4. Submit the ITR online via the Income Tax Department portal.
5. The rebate will be adjusted automatically in your tax computation.

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Detailed Guide on Rebate Under Section 87A

Impact of Deductions on 87A Rebate

Certain deductions under the Income Tax Act can help you qualify for the rebate under section 87A by reducing your taxable income below Rs 5 lakh. Common deductions include:

• Section 80C: Investments in PPF, LIC, ELSS, and principal repayment of home loan (max Rs 1.5 lakh).
• Section 80D: Health insurance premiums for self, spouse, and children.
• Section 80G: Donations to approved charitable organizations.
• Section 80CCD: Contribution to NPS (National Pension Scheme).
• Section 24(b): Interest on housing loan for self-occupied property.

Note: These deductions reduce your taxable income and can make you eligible for the rebate, even if your gross salary is slightly above Rs 5 lakh.

87A Rebate for Salaried vs Self-Employed Individuals

Both salaried and self-employed individuals can claim income tax rebate under section 87A if eligible. However, the calculation differs slightly based on the type of income:

• Salaried Individuals: Taxable income = Gross salary - standard deduction - professional tax - other deductions (80C, 80D, etc.).
• Self-Employed / Business Owners: Taxable income = Net profit after allowable business expenses and deductions.
• Once taxable income is ≤ Rs 5 lakh, apply the 87A rebate to reduce tax liability by up to Rs 12,500.

State-Level Considerations for 87A Rebate

While section 87A is a central income tax rebate, some state-level taxes or surcharges may apply separately. Key points to consider:

• State surcharges do not affect eligibility for 87A rebate.
• Residents in all states of India are eligible as long as taxable income conditions are met.
• Taxpayers in states with additional cesses should check final payable amounts after applying 87A.

Common Mistakes to Avoid

Many taxpayers miss out on claiming the 87A rebate due to simple errors. Avoid these mistakes:

• Not accounting for eligible deductions that reduce taxable income below Rs 5 lakh.
• Filing ITR in the wrong category (resident vs non-resident).
• Overlooking the deadline for filing ITR and claiming rebate.
• Claiming rebate in the old regime when the new regime is more beneficial.

Benefits of Claiming Section 87A Rebate

Claiming the rebate provides several advantages for taxpayers:

• Reduces total tax liability, potentially bringing it to zero for eligible individuals.
• Increases cash flow by maximizing refunds.
• Simplifies tax planning for middle-income earners.
• Encourages compliance with tax rules by claiming legitimate benefits.

Step-by-Step Guide to Claim the Rebate

Here is a practical step-by-step guide to claim 87A rebate efficiently:

1. Calculate total taxable income after all deductions.
2. Confirm residency status for eligibility.
3. Choose the applicable tax regime (new or old).
4. Fill rebate details in the appropriate ITR form online.
5. Submit ITR and check that the rebate is reflected in tax computation.
6. Maintain all deduction proofs and receipts for verification.

Simple Example

Example: A salaried individual with a gross income of Rs 6 lakh in FY 2025-26:

1. Gross salary: Rs 6,00,000
2. Deductions: 80C (Rs 1,50,000), 80D (Rs 20,000), standard deduction (Rs 50,000)
3. Taxable income: Rs 6,00,000 - 2,20,000 = Rs 3,80,000
4. Applicable 87A rebate: Rs 12,500
5. Final tax payable: Computed tax - Rs 12,500

This shows how deductions combined with the rebate can significantly reduce tax liability.

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Advanced Tips, Charts, and FAQs on Rebate Under Section 87A

Comparison: New vs Old Tax Regime for Section 87A

Understanding how the 87A rebate works under both regimes helps taxpayers make informed decisions. Here's a simple comparison:

Key Points to Remember

• The rebate under section 87A is available to individual taxpayers and Hindu Undivided Families (HUFs) only.
• Maximum rebate allowed: Rs 12,500 for FY 2025-26 (AY 2026-27).
• Check taxable income carefully, including all sources such as salary, rent, and capital gains.
• Ensure deductions are claimed properly to maximize eligibility.
• File ITR on time to claim rebate and avoid penalties.

Common Scenarios Where Rebate is Useful

Here are practical scenarios showing the importance of 87A rebate:

• A middle-income salaried person with taxable income just under Rs 5 lakh can save up to Rs 12,500 in taxes.
• Small business owners using the old regime with multiple deductions can lower taxable income and qualify for rebate.
• Senior citizens with limited income and eligible deductions can reduce their tax liability effectively.
• Families with multiple earning members can plan deductions under 80C, 80D, and 80U to avail maximum benefit.

Tips for Smooth Rebate Claiming

• Use online ITR filing portals with auto-calculation features for accurate rebate application.
• Keep proof of all investments and expenditures claimed under 80C, 80D, etc.
• Double-check taxable income before submission to ensure eligibility.
• Stay updated with budget notifications and amendments in rebate rules.
• Consider consulting a tax professional if income sources are complex.

Benefits of 87A Rebate for Taxpayers

• Reduces tax liability up to Rs 12,500, helping individuals save money.
• Encourages tax compliance among middle-income earners.
• Combines effectively with deductions to lower total tax payable.
• Simplifies financial planning for families and individuals.
• Helps maintain better cash flow for small earners.

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Conclusion

The rebate under section 87A is a better and best benefit for middle-income taxpayers in India for FY 2025-26 (AY 2026-27). Understanding eligibility, deductions, and differences between the new and old tax regime ensures maximum savings. By carefully planning taxable income and claiming allowed deductions, individuals can reduce their tax liability up to Rs 12,500. Using online ITR portals, keeping proper documentation, and staying updated with government notifications simplifies the process. Overall, 87A rebate not only helps in tax savings but also promotes disciplined financial planning and compliance.

Start reviewing your deductions today and ensure you claim your 87A rebate to maximize your refund and minimize tax payments efficiently.

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Frequently Asked Questions (FAQs)

Who is eligible for rebate under section 87A?

Individuals and HUFs with taxable income not exceeding Rs 5 lakh after deductions are eligible for 87A rebate.

How much rebate can I claim under 87A?

Maximum rebate allowed for FY 2025-26 is Rs 12,500 in old regime.

Does the new tax regime allow claiming 87A rebate?

Yes, but taxable income must be ≤ Rs 12 lakh after limited deductions applicable under the new regime.

Can I combine deductions to become eligible for 87A?

Yes, using deductions like 80C, 80D, standard deduction can reduce taxable income below Rs 5 lakh and qualify for rebate.

Is 87A rebate applicable for non-residents?

No, only resident individuals and HUFs are eligible.

Do senior citizens get any special treatment under 87A?

Yes, senior citizens can claim rebate if their taxable income is ≤ Rs 5 lakh, same as other eligible individuals.