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Income Tax Rebate under Section 87A: Eligibility, Benefits, Calculation & Claim Process

Indiafirst Life
• 23 Jul, 2026

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What is Section 87A?
Key Features of Section 87A
Benefits of Section 87A for Taxpayers
Eligibility Criteria for Section 87A
How is the Section 87A Rebate Calculated?
Example of Tax Rebate Calculation
How to Claim Rebate Under Section 87A
Changes in Section 87A Over the Years
Importance of Section 87A in Tax Planning
When Was Section 87A Introduced?
Rebate Under the Old Tax Regime
Rebate Under the New Tax Regime
Key Criteria for Old vs New Regime
Illustration of Tax Rebate for FY 2025–26 (AY 2026–27)
Rebate Limits for Each Year
How to Calculate Rebate Under Section 87A for an Individual Below 60 Years of Age?
Rebate u/s 87A for Previous Financial Years
Things to Consider About Section 87A
Tips to Maximize Your Tax Savings
Glossary
Frequently Asked Questions

Key Takeaways

Section 87A offers a direct rebate on tax liability for eligible resident individuals under both old and new tax regimes.
Rebate eligibility depends on taxable income limits, selected tax regime, and applicable conditions for the financial year.
Understanding Section 87A can help taxpayers reduce final tax payable and improve overall tax planning.

The Income Tax Rebate under Section 87A is a significant provision in the Indian Income Tax Act. It was introduced to provide financial relief to individual taxpayers in the lower-income bracket. This rebate offers direct tax savings, making it one of the simplest and most effective ways to reduce your tax burden.

Over the years, Section 87A has undergone revisions to ensure its relevance to the ever-changing economic landscape. This has made it a significant tool for tax planning. Let’s explore what the rebate involves, who qualifies for it, how it’s calculated, and how you can claim it.

What is Section 87A?

It is a rebate provision under the Income Tax Act of 1961.

Under the old tax regime, a rebate of up to ₹12,500 can be claimed if the taxable income does not exceed ₹5 lakh.

Under the new tax regime, for FY 2025–26 (AY 2026–27), a rebate of up to ₹60,000 can be claimed if the taxable income does not exceed ₹12 lakh. The rebate cannot exceed the total tax payable before cess.

Key Features of Section 87A

1. Direct Reduction in Tax Liability:
Section 87A provides a direct rebate on the tax payable, ensuring quick and efficient tax savings.

2. Tax-Exempt Status for Low-Income Earners:
Under the old tax regime, resident individuals with taxable income up to ₹5 lakh can claim a rebate of up to ₹12,500. Under the new tax regime, for FY 2025–26 (AY 2026–27), eligible resident individuals with taxable income up to ₹12 lakh can claim a rebate of up to ₹60,000, subject to applicable conditions.

3. Simplicity and Accessibility:
Unlike other tax-saving provisions, there are no complex investment requirements or documentation needed to avail of this rebate.

4. Encourages Compliance:
By reducing the financial burden of taxation, Section 87A promotes better compliance among taxpayers.

Benefits of Section 87A for Taxpayers

The rebate under Section 87A provides several benefits to taxpayers, especially those in the lower-income bracket. Primarily, it significantly reduces the tax burden. It ensures individuals with taxable incomes up to ₹5,00,000 or ₹12,00,000 can save up to ₹12,500 or to ₹60,000 respectively, on an annual basis. This relief encourages better compliance, as taxpayers are motivated to file their returns promptly. Additionally, the rebate can simplify tax planning for those unable to invest heavily in tax-saving instruments. By offering direct savings, it increases disposable income, enabling individuals to allocate funds for essential needs, savings, or investments. This provision aligns with the government's goal of financial inclusivity.

Eligibility Criteria for Section 87A

Not all taxpayers can avail of this rebate, as it is targeted toward resident individuals with lower incomes. Here are the key eligibility criteria:

1. Resident Individual Status:
The rebate is applicable only to resident individuals in India. Non-resident Indians (NRIs), Hindu Undivided Families (HUFs), and corporations, are not eligible.

2. Taxable Income Threshold:
After accounting for all eligible deductions under various sections, your total taxable income must not exceed ₹5,00,000 or ₹12,00,000,

Even senior citizens (between the ages of 60 and 80) can claim this rebate if they meet the income threshold.

How is the Section 87A Rebate Calculated?

The rebate under Section 87A is straightforward to calculate but involves a few important steps. Let’s break it down:

1. Determine Gross Income:
Calculate your total income from all sources, including salary, rental income, capital gains, and other earnings.

2. Apply Deductions:
Deduct eligible amounts under sections (such as 80C, which concerns itself with investments in PPF, ELSS, and others), 80D (health insurance premiums), and other tax-saving sections.

3. Calculate Taxable Income:
Subtract the deductions from your gross income to arrive at your taxable income.

4. Apply Tax Slabs:
Compute your total tax liability using the applicable tax rates.

5. Rebate Application:
If your taxable income is ₹5,00,000 or less, apply the rebate of up to ₹12,500 to reduce your tax liability. Under the new tax regime for FY 2025–26 (AY 2026–27), if your taxable income is ₹12,00,000 or less, apply the rebate of up to ₹60,000, subject to applicable conditions.

You may follow the same process for carrying out calculations according to the new regime and its respective limits and conditions.

Example of Tax Rebate Calculation

To illustrate how Section 87A works, let’s consider the following example:

Gross Income: ₹6,65,000
Deductions (80C & 80D): ₹1,70,000
Taxable Income: ₹4,95,000

Tax Calculation:

Tax on first ₹2,50,000: 0% = ₹0
Tax on next ₹2,00,000: 5% = ₹12,250
Less: Rebate under Section 87A = ₹12,250

Final Tax Payable: ₹0

This example highlights how the rebate under Section 87A can completely eliminate the tax liability for individuals in the specified income bracket.

While manual tax calculations are useful for understanding the process, an Income Tax Calculator simplifies the entire exercise. It automatically applies the latest tax slabs, rebate provisions, and surcharge rules to provide an accurate estimate of your tax liability.

How to Claim Rebate Under Section 87A

Claiming the rebate is a simple process that involves accurate tax-filing and proper documentation.

Here’s what you need to do:

Step 1. File Your ITR on Time: Ensure that your Income Tax Return (ITR) is filed within the stipulated deadline.

Step 2. Include All Income Sources: Accurately report income from all sources, including salary, business profits, and investments.

Step 3. Deduction Details: Provide details of all deductions claimed under sections such as 80C and 80D.

Step 4. Automated Calculation: Most online tax-filing portals and software automatically apply the rebate under Section 87A if you meet the criteria.

📅[Calculate Your Income Tax]

Changes in Section 87A Over the Years

The rebate amount and income threshold under Section 87A have evolved since its introduction in 2013:

2013: Rebate of ₹2,000 for incomes up to ₹5,00,000.
2016: Increased to ₹5,000.
2019: Raised to ₹12,500, applicable for taxable incomes of up to ₹5,00,000.
2023: Rebate of ₹25,000 for incomes up to ₹7,00,000 (in the new regime).
2025: Rebate enhanced to ₹60,000 for taxable incomes of up to ₹12,00,000 (under the new regime) for FY 2025–26 (AY 2026–27).

These changes reflect the government’s effort to support lower-income groups by offering substantial tax relief.

Importance of Section 87A in Tax Planning

Section 87A plays a pivotal role in tax planning for individuals in the lower-income bracket. By offering direct tax relief, it ensures taxpayers have more disposable income, enabling them to save or invest for their future financial goals.

The provision simplifies tax compliance, as individuals earning below the threshold need not make significant adjustments to their tax plans. It also supports the government’s vision of promoting financial inclusion and reducing income inequality.

When Was Section 87A Introduced?

Section 87A was introduced through the Finance Act, 2013 and became effective from Assessment Year (AY) 2014–15. The purpose behind introducing this provision was straightforward: to reduce the tax burden on resident individual taxpayers in lower-income categories and improve voluntary tax compliance.

Before the introduction of this rebate, taxpayers with relatively modest taxable incomes still had to pay tax according to the applicable slab rates, even when the final liability was comparatively low. To address this gap, the government introduced a direct rebate mechanism that reduces the final income tax payable instead of providing an additional deduction from income.

Over the years, Sec 87A has evolved significantly. The rebate amount and income thresholds have been revised multiple times to reflect inflation, changing tax policies, and the introduction of the new tax regime. Today, the provision continues to be one of the most searched tax-saving topics because taxpayers often compare the availability of the 87A rebate under different tax regimes before filing their Income Tax Return (ITR).

Unlike deductions under Sections 80C or 80D, the rebate under Section 87A is applied after calculating your tax liability. This means eligible taxpayers can directly reduce the amount of tax payable.

Rebate Under the Old Tax Regime

Under the old tax regime, the 87A rebate continues to provide relief to resident individuals with lower taxable income. The rebate becomes available only after calculating taxable income after all eligible deductions.

Rebate Under Old Regime (FY 2025–26 | AY 2026–27)

Particulars	Details
Eligible Taxpayers	Resident Individuals
Maximum Taxable Income	₹5,00,000
Maximum Rebate Available	₹12,500
Rebate Applies On	Final tax payable
Deductions Allowed	Yes

To understand this better, assume your gross income is ₹6.5 lakh and you claim deductions under Sections 80C and 80D worth ₹1.6 lakh. Your taxable income reduces below ₹5 lakh. Once the tax is calculated, the applicable rebate under Section 87A can reduce your final tax liability.

The old regime may still work well for taxpayers who actively use deductions and exemptions.

Rebate Under the New Tax Regime

The 87A rebate in new tax regime has received substantial attention because of recent updates to rebate thresholds and relief amounts.

For FY 2025–26 (AY 2026–27), resident individuals under the new tax regime can claim a rebate of up to ₹60,000, subject to prescribed income limits and applicable conditions.

Rebate Under New Regime (FY 2025–26 | AY 2026–27)

Particulars	Details
Eligible Taxpayers	Resident Individuals
Maximum Taxable Income	₹12,00,000
Maximum Rebate Available	₹60,000
Deductions Allowed	Limited
Tax Relief Type	Direct rebate

One reason the 87A rebate in new tax regime has become increasingly popular is that taxpayers may achieve lower tax liability even without claiming multiple deductions.

Under the new regime, life insurance premiums can still support broader financial planning objectives and may continue to contribute to tax optimisation through applicable provisions.

Key Criteria for Old vs New Regime

Choosing between tax regimes is not only about slab rates. It also affects your ability to claim deductions and access the 87A rebate.

Criteria	Old Regime	New Regime
Maximum Income for Rebate	₹5 lakh	₹12 lakh
Maximum Rebate	₹12,500	₹60,000
Deductions	Available	Limited
Suitable For	Taxpayers claiming deductions	Taxpayers preferring simpler filing

If you regularly invest under tax-saving sections, the old regime may remain useful. However, taxpayers with fewer deductions often compare whether the rebate under Section 87A creates better outcomes under the new regime.

Illustration of Tax Rebate for FY 2025–26 (AY 2026–27)

Example 1: Salary Income of ₹6 lakh

Assume annual salary income of ₹6 lakh.

Particulars	Old Regime	New Regime
Gross Income	₹6 lakh	₹6 lakh
Deductions	₹1 lakh	Nil
Taxable Income	₹5 lakh	₹6 lakh
Rebate	Eligible	Eligible

Example 2: Salary Income of ₹7 lakh

At ₹7 lakh income, eligibility depends on deductions and selected regime.

Example 3: Salary Income of ₹8 lakh

At ₹8 lakh income, taxpayers should compare total liability under both regimes before selecting one.

These illustrations show why taxpayers frequently evaluate Section 87A before filing returns.

Rebate Limits for Each Year

Year	Rebate	Income Threshold
2013	₹2,000	₹5 lakh
2016	₹5,000	₹5 lakh
2019	₹12,500	₹5 lakh
2023	₹25,000	₹7 lakh
2025	₹60,000	₹12 lakh

These revisions demonstrate how Section 87A has expanded over time.

How to Calculate Rebate Under Section 87A for an Individual Below 60 Years of Age?

Step 1: Calculate gross annual income.

Step 2: Reduce eligible deductions.

Step 3: Determine taxable income.

Step 4: Apply slab rates.

Step 5: Check eligibility under Sec 87A.

Step 6: Apply the eligible rebate amount.

Since the rebate reduces tax liability directly, taxpayers should verify eligibility before filing.

Rebate u/s 87A for Previous Financial Years

Because thresholds have changed repeatedly, taxpayers should always calculate the 87A rebate according to the relevant financial year and assessment year.

This becomes especially important while filing revised returns or checking historical tax liability.

Things to Consider About Section 87A

The rebate applies only to resident individuals.
Taxable income must remain within applicable limits.
Tax regime selection directly impacts eligibility.
The rebate reduces tax payable and does not reduce gross income.
Income subject to special tax treatment may require additional review.

Tips to Maximize Your Tax Savings

With proper planning and awareness, taxpayers can maximize their benefits and enjoy peace of mind via reduced tax obligations.

1. Invest Strategically: Utilize deductions under sections such as 80C (PPF, NSC, ELSS) to reduce taxable income and qualify for the rebate.

2. Plan Health Insurance Wisely: Health insurance premiums under Section 80D not only provide coverage but also help reduce taxable income.

3. Stay Updated: Stay informed about any changes to tax laws, rebate limits, or thresholds to maximize your benefits.

The Income Tax Rebate under Section 87A is a crucial tool for middle-income and lower-income taxpayers. By providing a direct reduction in tax liability, it ensures that individuals with taxable incomes of up to ₹5,00,000 effectively pay no taxes.

Understanding and utilizing this rebate can lead to significant tax savings, encouraging financial stability and better compliance.

Glossary

Understanding tax terminology can make it easier to determine eligibility for rebates and calculate your tax liability correctly. Here are some important terms related to Section 87A and income tax filing:

Assessment Year (AY):

The year immediately following the Financial Year in which income is assessed and taxed. For example, income earned during FY 2025–26 is assessed in AY 2026–27.

Financial Year (FY):

The 12-month period during which you earn income. In India, the Financial Year runs from 1 April to 31 March.

Gross Total Income:

The total income earned from all sources before deductions are applied. This may include salary income, business income, rental income, capital gains, and income from other sources.

Taxable Income:

The income remaining after subtracting eligible deductions and exemptions from gross total income. Eligibility for the 87A rebate is determined based on taxable income and not gross income.

Tax Rebate:

A rebate directly reduces the amount of income tax payable after tax calculations are completed. Unlike deductions, rebates reduce the final tax liability.

Rebate Under Section 87A:

A tax relief provision available to eligible resident individual taxpayers that allows a reduction in final tax liability if taxable income remains within the prescribed threshold.

Tax Deduction:

An amount that reduces taxable income before tax is calculated. Examples include eligible deductions under Sections 80C and 80D.

Old Tax Regime:

The traditional tax system that allows taxpayers to claim deductions and exemptions while calculating taxable income. Eligibility for the rebate under Section 87A under this regime depends on the applicable income threshold.

New Tax Regime:

A simplified taxation structure with revised slab rates and limited deductions. The 87A rebate in the new tax regime operates based on separate income thresholds and rebate limits.

Tax Liability:

The total amount of income tax payable after applying slab rates, deductions, exemptions, and rebates.

Income Tax Return (ITR):

The official form filed by taxpayers to declare income, deductions, tax liability, and claim applicable benefits.

Resident Individual:

A taxpayer whose residential status satisfies conditions under the Income Tax Act and who may qualify for benefits available under Sec 87A.

Capital Gains:

Profit earned from selling capital assets such as property, mutual funds, or shares. Certain capital gains may be taxed differently from regular income.

Short-Term Capital Gains (STCG):

Capital gains arising from assets sold within the prescribed holding period. Tax treatment of STCG may affect whether the 87A rebate can be applied.

Tax Regime Selection:

The process of choosing between the old and new tax regimes while filing returns based on which structure results in lower tax liability.

Frequently Asked Questions

1. Is Section 87A applicable to HUFs or firms?

No, the rebate under Section 87A is available only to resident individuals.

2. What happens if my taxable income exceeds ₹5,00,000?

If your taxable income exceeds ₹5,00,000, you are not eligible for the rebate under Section 87A, even if your tax liability is below ₹12,500.

3. Can senior citizens claim the rebate?

Yes, depending on the age range they fall in, senior citizens can claim the rebate if their taxable income does not exceed ₹5,00,000.

4. Is the rebate applied automatically?

Yes, most tax-based computation systems apply the rebate automatically if the eligibility criteria are met.

5. What is the 87A rebate limit for FY 2025–26?

Under the old regime, eligible taxpayers can claim up to ₹12,500. Under the new regime, the rebate can go up to ₹60,000 subject to applicable conditions.

6. Can I claim the 87A rebate under the new tax regime?

Yes, eligible resident individuals can claim the 87A rebate in the new tax regime if they satisfy the prescribed conditions.

7. Can I claim the 87A rebate on STCG?

The availability of a rebate on short-term capital gains depends on applicable provisions and prevailing tax treatment.

8. How to claim the Section 87A rebate while filing ITR?

Eligible taxpayers can claim the rebate while filing their Income Tax Return after calculating their final taxable income.

Income Tax Rebate under Section 87A: Eligibility, Benefits, Calculation & Claim Process

What is Section 87A?

Key Features of Section 87A

Benefits of Section 87A for Taxpayers

Eligibility Criteria for Section 87A

How is the Section 87A Rebate Calculated?

Example of Tax Rebate Calculation

How to Claim Rebate Under Section 87A

Changes in Section 87A Over the Years

Importance of Section 87A in Tax Planning

When Was Section 87A Introduced?

Rebate Under the Old Tax Regime

Rebate Under the New Tax Regime

Key Criteria for Old vs New Regime

Illustration of Tax Rebate for FY 2025–26 (AY 2026–27)

Rebate Limits for Each Year

How to Calculate Rebate Under Section 87A for an Individual Below 60 Years of Age?

Rebate u/s 87A for Previous Financial Years

Things to Consider About Section 87A

Tips to Maximize Your Tax Savings

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Income Tax Rebate under Section 87A: Eligibility, Benefits, Calculation & Claim Process

What is Section 87A?

Key Features of Section 87A

Benefits of Section 87A for Taxpayers

Eligibility Criteria for Section 87A

How is the Section 87A Rebate Calculated?

Example of Tax Rebate Calculation

How to Claim Rebate Under Section 87A

Changes in Section 87A Over the Years

Importance of Section 87A in Tax Planning

When Was Section 87A Introduced?

Rebate Under the Old Tax Regime

Rebate Under the New Tax Regime

Key Criteria for Old vs New Regime

Illustration of Tax Rebate for FY 2025–26 (AY 2026–27)

Rebate Limits for Each Year

How to Calculate Rebate Under Section 87A for an Individual Below 60 Years of Age?

Rebate u/s 87A for Previous Financial Years

Things to Consider About Section 87A

Tips to Maximize Your Tax Savings

Glossary

Frequently Asked Questions

Related Articles

What is Section 87A?

Key Features of Section 87A

Benefits of Section 87A for Taxpayers

Eligibility Criteria for Section 87A

How is the Section 87A Rebate Calculated?

Example of Tax Rebate Calculation

How to Claim Rebate Under Section 87A

Changes in Section 87A Over the Years

Importance of Section 87A in Tax Planning

When Was Section 87A Introduced?

Rebate Under the Old Tax Regime

Rebate Under Old Regime (FY 2025–26 | AY 2026–27)

Rebate Under the New Tax Regime

Rebate Under New Regime (FY 2025–26 | AY 2026–27)

Key Criteria for Old vs New Regime

Illustration of Tax Rebate for FY 2025–26 (AY 2026–27)

Example 1: Salary Income of ₹6 lakh

Example 2: Salary Income of ₹7 lakh

Example 3: Salary Income of ₹8 lakh

Rebate Limits for Each Year

How to Calculate Rebate Under Section 87A for an Individual Below 60 Years of Age?

Rebate u/s 87A for Previous Financial Years

Things to Consider About Section 87A

Tips to Maximize Your Tax Savings

Glossary

Assessment Year (AY):

Financial Year (FY):

Gross Total Income:

Taxable Income:

Tax Rebate:

Rebate Under Section 87A:

Tax Deduction:

Old Tax Regime:

New Tax Regime:

Tax Liability:

Income Tax Return (ITR):

Resident Individual:

Capital Gains:

Short-Term Capital Gains (STCG):

Tax Regime Selection:

Frequently Asked Questions

1. Is Section 87A applicable to HUFs or firms?

2. What happens if my taxable income exceeds ₹5,00,000?

3. Can senior citizens claim the rebate?

4. Is the rebate applied automatically?

5. What is the 87A rebate limit for FY 2025–26?

6. Can I claim the 87A rebate under the new tax regime?

7. Can I claim the 87A rebate on STCG?

8. How to claim the Section 87A rebate while filing ITR?

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