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Rules 2026

Rebate Under Section 87A of the Income Tax Act 2025

Section 87A gives a tax rebate of up to ₹25,000 to residents with taxable income up to ₹7 lakh under the new regime. Here is who qualifies, how much you save, and how to claim it.

Introduction

Section 87A of the Income Tax Act 2025 gives a tax rebate to individual residents whose total taxable income is within a set limit. Under the new regime, the rebate is up to ₹25,000 — effectively making the tax zero for anyone earning up to ₹7 lakh a year. This is one of the most important tax relief provisions for ordinary Indian taxpayers.

The rebate reduces your calculated tax to zero. It applies after your slab rates are applied but before the 4% cess is added. Since the cess applies on the tax after rebate, you effectively pay zero tax on income up to ₹7 lakh.

Key facts

Up to ₹25,000 rebate under new regime

Under Section 87A of the Income Tax Act 2025, an individual with taxable income up to ₹7 lakh under the new regime gets a rebate of up to ₹25,000. This means zero tax for income up to ₹7 lakh after the standard deduction.

New regime vs old regime

The rebate under the new regime is ₹25,000 (or the tax amount, whichever is lower). Under the old regime, the rebate was limited to ₹12,500 for income up to ₹5 lakh. The new regime rebate is more generous.

Available to all resident individuals

The rebate applies to any resident individual — salaried, self-employed, pensioner, or business owner — whose total taxable income after deductions is within the ₹7 lakh threshold.

What the rebate does

The rebate reduces your tax to zero at the filing stage. It applies after calculating your tax on the slab rates, but before adding the 4% cess. Effectively, a resident individual earning up to ₹7 lakh pays zero tax under the new regime.

Rebate comparison — new vs old regime

Feature New regime Old regime
Maximum rebate ₹25,000 ₹12,500
Income limit ₹7 lakh taxable income ₹5 lakh taxable income
Who qualifies All resident individuals All resident individuals
Tax on ₹7 lakh income Zero (after rebate) ₹15,000 + cess

Frequently asked questions

Is the rebate of ₹25,000 available to everyone?
The rebate of up to ₹25,000 is available only if your taxable income (after deductions like the standard deduction) is up to ₹7 lakh. If your taxable income is above ₹7 lakh, the rebate reduces to the actual tax amount, which means you pay the normal slab rates.

Does the rebate apply to the old regime?
Yes, but the old regime rebate under Section 87A is limited to ₹12,500 for individuals with taxable income up to ₹5 lakh. The new regime rebate of ₹25,000 is more generous and is available up to a ₹7 lakh taxable income.

Is the rebate amount refunded if tax is already deducted?
Yes. If your employer or bank deducted TDS reducing your tax liability to zero, but you qualify for the rebate at the time of filing, the rebate reduces your total tax to zero and no refund is due. If excess TDS was deducted beyond the rebate entitlement, you receive the excess as a refund when you file your ITR.

What is the difference between rebate and refund?
A rebate under Section 87A is a tax relief that reduces your tax liability before it is calculated — your tax bill becomes zero up to the rebate amount. A refund is money you overpaid during the year that is returned to you after you file your ITR. The rebate prevents tax from being owed; a refund returns excess tax already paid.

How do I claim the rebate when filing my ITR?
The rebate is automatically applied when you file your ITR using the income tax portal or a supported filing utility. Select the new regime, enter your income and deductions, and the portal calculates the rebate under Section 87A and shows your tax as zero if your income is within the limit.

Sources

Last reviewed by FinWiz24 Research Desk.