Section 87A Rebate in Budget 2025: The Union Budget 2025 has introduced a major tax relief for individuals under Section 87A, significantly increasing the rebate limit and reducing the tax burden for middle-class taxpayers. Previously, the 87A rebate applied to individuals earning up to ₹7 lakh, allowing them to pay zero tax. However, in a historic move, the government has now raised the income threshold to ₹12 lakh under the new tax regime, ensuring that more taxpayers enjoy full tax exemption.
This update means that millions of salaried individuals and small business owners will see greater disposable income, encouraging spending, saving, and investment. Below, we explore the impact of this change, who qualifies, and how taxpayers can benefit.
Section 87A Rebate in Budget 2025
| Feature | Revised Limit (2025) | Previous Limit |
|---|---|---|
| Maximum Taxable Income Eligible for 87A Rebate | ₹12 lakh | ₹7 lakh |
| Maximum Rebate Amount | ₹60,000 | ₹25,000 |
| Effective From | April 1, 2025 | N/A |
| Standard Deduction for Salaried Employees | ₹50,000 | ₹50,000 |
| New Tax Regime Applicability | Yes | Yes |
| Applicable Taxpayers | Resident Individuals | Resident Individuals |
| Official Government Website | incometax.gov.in | N/A |
The enhancement of Section 87A rebate to ₹12 lakh is a game-changer for taxpayers, reducing their tax liabilities and boosting disposable income. With a higher rebate of ₹60,000, middle-class individuals and salaried employees stand to benefit immensely from this tax relief.
What is Section 87A?
Section 87A of the Income Tax Act provides a rebate on tax payable for individuals whose net taxable income falls within the specified threshold. Essentially, it allows qualifying taxpayers to reduce their tax liability to zero.
For example, under the previous system:
- If a taxpayer earned ₹7 lakh in a financial year, their entire tax liability was rebated.
- If they earned ₹7.5 lakh, they had to pay tax on the remaining ₹50,000.
With the 2025 update, taxpayers with income up to ₹12 lakh will now receive a rebate of up to ₹60,000, bringing their tax liability to zero.
Why Did the Government Increase the Rebate Limit?
The increase in the 87A rebate threshold serves multiple purposes:
- Lower tax burden for middle-class taxpayers
- Encourages savings and investments
- Boosts consumer spending
- Simplifies tax compliance
Who Can Claim the 87A Rebate in 2025?
To qualify for the rebate under Section 87A, an individual must meet the following criteria:
- Must be a resident individual (not applicable to HUFs or companies).
- Must have a net taxable income of up to ₹12 lakh.
- Should opt for the new tax regime.
- Income should not include capital gains, lottery winnings, or special rate incomes.
How Much Tax Will You Save with the 87A Rebate?
Let’s take a look at how this rebate impacts taxpayers under the new tax regime:
| Taxable Income (₹) | Tax Payable Before Rebate | 87A Rebate Applied | Final Tax Payable |
|---|---|---|---|
| 7,00,000 | ₹25,000 | ₹25,000 | ₹0 |
| 9,00,000 | ₹45,000 | ₹45,000 | ₹0 |
| 10,50,000 | ₹58,000 | ₹58,000 | ₹0 |
| 12,00,000 | ₹60,000 | ₹60,000 | ₹0 |
| 13,00,000 | ₹80,000 | ₹60,000 | ₹20,000 |
Genpact Hiring Alert: New Hiring Drive for Indian Techies—Apply Now!
What is UCC? Is India Ready for the Uniform Civil Code! Experts Weigh In
Delhi GDS 3rd Merit List 2024 (Declared?); India Post Delhi GDS Result pdf
Claim the 87A Rebate?
- Choose the Right Tax Regime: To avail of the 87A rebate, taxpayers must opt for the new tax regime while filing their Income Tax Returns (ITR).
- Calculate Your Net Taxable Income: Deduct eligible exemptions and deductions, such as standard deduction of ₹50,000 for salaried individuals, from your total income to determine your net taxable income.
- Check If You Qualify for the Rebate: If your taxable income does not exceed ₹12 lakh, you qualify for the 87A rebate.
- File Your ITR: Ensure you file your ITR correctly through the Income Tax Department’s e-filing portal and select the new tax regime.
- Verify the Rebate Calculation: After filing, confirm that the rebate of up to ₹60,000 has been applied to your tax calculation.
FAQs On Section 87A Rebate in Budget 2025
Q1: Does Section 87A apply to both the old and new tax regimes?
No, the revised ₹12 lakh rebate limit is applicable only under the new tax regime.
Q2: Will I still need to pay taxes if I earn more than ₹12 lakh?
Yes, the rebate is applicable only up to ₹12 lakh. If your taxable income exceeds this limit, you will need to pay tax on the amount exceeding ₹12 lakh.
Q3: Does this rebate apply to capital gains or lottery income?
No, capital gains, lottery winnings, and income taxed at special rates do not qualify for the 87A rebate.
Q4: Can I claim additional deductions under the new tax regime?
No, most deductions (such as 80C, 80D, HRA) are not applicable under the new tax regime except for the standard deduction of ₹50,000 for salaried employees.
Q5: How will this rebate impact my monthly take-home salary?
With lower tax liabilities, salaried employees will see higher take-home pay due to reduced TDS (Tax Deducted at Source) deductions.
