Section 87A of the Income Tax Act is a special rebate that helps small taxpayers save money on their tax bills. If your income is under a certain limit, you can get a full rebate and pay zero income tax. Let’s break it down in simple language.
What is Section 87A?
Section 87A is a provision in the Income Tax Act that offers a rebate (reduction) on your total income tax if your income is within a certain limit. This rebate is directly subtracted from the tax you owe, not from your income.
Applicable for: Financial Year 2024-25 (Assessment Year 2025-26)
Who Can Claim the Rebate?
- You must be a resident individual (not Hindu Undivided Family or company)
- Your total income (after deductions) must be within ₹7 lakh under the new tax regime
- Or within ₹5 lakh under the old tax regime
How Much Rebate Do You Get?
Under New Tax Regime:
- If your total income is ₹7 lakh or less, you get a rebate of up to ₹25,000
- This means you don’t pay any income tax
Under Old Tax Regime:
- If your total income is ₹5 lakh or less, you get a rebate of up to ₹12,500
- Again, you end up paying zero tax
Summary Table
| Tax Regime | Income Limit for Rebate | Maximum Rebate | Net Tax Payable |
|---|---|---|---|
| New Regime | ₹7,00,000 | ₹25,000 | ₹0 |
| Old Regime | ₹5,00,000 | ₹12,500 | ₹0 |
Simple Example
- Rahul earns ₹6.8 lakh annually and chooses the new tax regime:
- He qualifies for the ₹25,000 rebate under Section 87A
- He pays zero tax
- Priya earns ₹5.2 lakh under the old regime:
- She doesn’t qualify as her income is above ₹5 lakh
- She must pay tax after applicable deductions
Key Points to Remember
- This rebate is only for individuals—not for HUFs, companies, or firms
- It applies after deductions like 80C, 80D etc. in the old regime
- The rebate is not a refund, it’s a tax reduction
- If your income exceeds ₹7 lakh (new regime), even by ₹1, you lose the full rebate—unless marginal relief applies
Conclusion
Section 87A is a great benefit for low and middle-income taxpayers. It rewards those who earn within the set limit by giving a full tax break. By understanding and planning your income and deductions wisely, you can save tax legally and efficiently.
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