Mr. Ramesh has just received his Form 16 from his employer. While preparing to file his Income Tax Return, he notices that his taxable income is around Rs.11.80 lakh under the new tax regime.
A question immediately comes to mind:
Do I have to pay income tax, or can I claim the Section 87A rebate?
Many salaried employees, freelancers, and pensioners have the same doubt every year. Understanding this rebate can help you reduce your tax liability—and in some cases, eliminate it completely.
Yes, you can claim a rebate under Section 87A if you are a resident individual and your taxable income is within the prescribed limit.
For FY 2025-26:
- Under the New Tax Regime, you can claim a rebate of up to Rs. 60,000 if your taxable income is up to Rs. 12 lakh.
- Under the Old Tax Regime, you can claim a rebate of up to Rs. 12,500 if your taxable income is up to Rs. 5 lakh.
The rebate directly reduces your income tax before adding the 4% Health and Education Cess.
Why Does the Government Offer This Rebate?
Section 87A is designed to provide tax relief to individuals with lower and middle incomes. Instead of reducing your income, it reduces the amount of tax you have to pay.
Think of it like this:
- Deduction reduces your taxable income.
- Rebate reduces your tax bill.
Who Can Claim Rebate Under Section 87A?
You are eligible if:
- You are a resident individual.
- Your taxable income is within the prescribed limit.
- Your tax is calculated under the normal slab rates.
Who Cannot Claim Rebate Under Section 87A?
The rebate under Section 87A is available to a resident individual . It is not available to persons other than resident individual like HUFs or firms, or companies.
You cannot use the rebate against tax on:
- Long-term capital gains u/s 112A
- Short-term capital gains u/s 111A
- Lottery winning Income
- Other income taxed at special rates.
What Is Marginal Relief?
Marginal Relief is a tax benefit available under the new tax regime if your taxable income is slightly above Rs.12 lakh. It ensures that the extra tax you pay is not more than the amount by which your income exceeds Rs.12 lakh.
Example: Mr. Ravi, a resident individual, has a taxable income of Rs.12,40,000 under the new tax regime.
| Particulars | Amount (Rs) |
|---|---|
| Taxable Income | 12,40,000 |
| Income above Rs.12 lakh | 40,000 |
| Income Tax (before cess) | 66,000 |
| Marginal Relief under Section 87A | 26,000 |
| Tax Payable (before cess) | 40,000 |
| Health & Education Cess @ 4% | 1,600 |
| Total Tax Liability | 41,600 |
In this example, Mr. Ravi’s taxable income exceeds the Rs.12 lakh rebate limit by Rs.40,000. Although his normal tax liability is Rs.66,000, he gets marginal relief of Rs.26,000 under Section 87A. As a result, his tax payable is limited to Rs.40,000 (plus 4% cess), ensuring that the additional tax does not exceed the additional income above the ₹12 lakh threshold.
Section 87A Checklist
Before filing your Income Tax Return, go through this quick checklist.
- Are you a resident individual?
- Have you calculated your taxable income correctly?
- Did you choose the correct tax regime?
- Is your income within the rebate limit?
- Have you checked whether any capital gains are taxed separately?
Common Mistakes to Avoid
- Confusing a tax deduction with a tax rebate.
- Using gross income instead of taxable income.
- Assuming NRIs can claim the rebate.
- Ignoring marginal relief when income is slightly above ₹12 lakh.
- Expecting the rebate to apply to all types of income.
TaxStudyOnline’s Final Takeaway
If your taxable income falls within the eligible limit, check whether the Section 87A rebate applies before submitting your Income Tax Return. Compare both tax regimes, calculate your final tax liability, and ensure all eligible deductions and rebates have been considered.
A few minutes of review can help you avoid paying unnecessary tax and file your return with confidence.
