The Section 87A rebate is one of the most talked-about aspects of India’s Union Budget 2025, offering salaried individuals a major tax break. In simple terms, this rebate directly reduces the income tax that individuals need to pay, putting more money in their pockets. Whether you’re a salaried employee trying to figure out how this new provision works, or a tax professional looking for a detailed breakdown, this article will guide you through it.
The Budget 2025 has introduced several changes to the Section 87A rebate, making it a game-changer for individuals earning up to ₹12 lakh annually. The increased rebate offers new opportunities for tax savings and can significantly reduce the tax burden for many. Let’s dive into the details of these changes and how they will impact salaried individuals.
Section 87A Rebate Explained
| Key Data | Details |
|---|---|
| Section 87A Rebate Limit | Increased from ₹25,000 to ₹60,000 for individuals earning up to ₹12 lakh. |
| Income Threshold | Rebate available for individuals with taxable income up to ₹12 lakh. |
| Tax-Free Limit with Rebate | Taxable income of up to ₹12.75 lakh becomes effectively tax-free with deductions. |
| New Tax Slabs | Detailed tax slabs introduced for FY 2025-26, with up to 30% tax on income above ₹24 lakh. |
| Standard Deduction | ₹75,000 available for salaried individuals, further reducing taxable income. |
The Section 87A rebate introduced in Budget 2025 is a significant win for salaried individuals, providing an opportunity for substantial tax savings. By increasing the income limit to ₹12 lakh and raising the rebate amount to ₹60,000, the government has made the tax system more progressive, offering real benefits to individuals in the lower to middle-income brackets.
Whether you’re looking to maximize your tax savings this year or simply stay informed about the latest tax policies, understanding the Section 87A rebate is crucial. It can reduce your taxable income, lower your tax liability, and ultimately put more money in your pocket. By following the right steps and staying on top of your finances, you can make the most of these changes.
Understanding the Section 87A Rebate
What is the Section 87A Rebate?
Section 87A of the Income Tax Act provides a rebate to taxpayers based on their income levels. The rebate reduces the overall income tax liability, directly lowering the amount of tax you owe. In simpler terms, it’s like a discount on your tax bill. It’s designed to provide tax relief, especially to lower-income taxpayers, and has been a crucial part of the tax system for years.
Before the Union Budget 2025, this rebate was capped at ₹25,000 for individuals earning up to ₹7 lakh annually. But the new changes announced in the budget have made this rebate even more beneficial.
The New Changes: What’s Different in Budget 2025?
In Budget 2025, the government has raised the income threshold to ₹12 lakh, meaning individuals with an annual taxable income of up to ₹12 lakh can now benefit from this rebate. Furthermore, the maximum rebate amount has been increased to ₹60,000, which means more tax savings for eligible individuals.
For many individuals, this change is substantial. Salaried individuals earning up to ₹12.75 lakh could potentially have no tax liability after the rebate, depending on their specific financial situation and other deductions.
Why is This Important for Salaried Individuals?
If you’re a salaried individual, you likely have several deductions that reduce your taxable income. This might include things like standard deductions or deductions for investments under Section 80C. The rebate under Section 87A works as an additional benefit, directly reducing your tax liability, which is a huge advantage for those earning under ₹12 lakh annually.
Breaking Down the Key Details
1. Income Limits and Taxable Income
- Income Limit: With the new changes, individuals earning up to ₹12 lakh are eligible for the rebate. This is a significant increase from the previous threshold of ₹7 lakh.
- Taxable Income: To calculate your taxable income, you must first apply any deductions (like the standard deduction of ₹75,000 for salaried individuals). This brings your net taxable income below the ₹12 lakh limit, making you eligible for the rebate.
For example, if your gross income is ₹12.75 lakh and you apply the standard deduction, your taxable income reduces to ₹12 lakh, which qualifies for the rebate of ₹60,000.
2. How the Rebate Works
If your taxable income is ₹12 lakh or less, you can claim the Section 87A rebate. Let’s say your total tax liability comes out to ₹60,000; with this rebate, your tax bill would be reduced to zero. However, if your liability is higher than ₹60,000, you will still need to pay the difference.
Here’s a quick example to illustrate:
Example:
- Gross Income: ₹12,75,000
- Standard Deduction: ₹75,000
- Taxable Income: ₹12,00,000
- Tax Liability: ₹60,000 (before rebate)
- Rebate: ₹60,000 (Section 87A)
- Final Tax Payable: ₹0
3. New Tax Slabs for FY 2025-26
The new tax slabs introduced in the Union Budget 2025 also play a crucial role in determining your overall tax liability. The tax slabs are progressive, which means the more you earn, the higher the percentage of tax you pay. Here’s how the new tax slabs look for FY 2025-26:
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | 0% |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The new tax slabs offer lower rates for those in the lower income brackets, and the higher rates apply to those in the higher-income categories.
4. Standard Deduction for Salaried Individuals
In addition to the Section 87A rebate, salaried individuals can also avail of a standard deduction of ₹75,000 from their gross income. This deduction is automatically available, reducing your taxable income and thereby lowering your tax bill even further.
Additional Considerations
How to Maximize Tax Savings?
While the Section 87A rebate provides an immediate benefit, there are several other ways to maximize your tax savings, especially for salaried individuals:
- Invest in Tax-Exempt Instruments: Make use of tax-saving instruments under Section 80C, such as PPF, ELSS, EPF, or NPS. These can significantly reduce your taxable income.
- Claim Other Deductions: Apart from the Section 80C deductions, other sections like Section 80D (health insurance premiums), Section 24(b) (home loan interest), and Section 10 (HRA) can be used to reduce your taxable income further.
- Consider Voluntary Provident Fund (VPF): If you are a government employee or have an employer who contributes to a Provident Fund, you can contribute more voluntarily to increase your tax savings.
- Plan Your Income: Be mindful of your income timing and composition. If possible, defer certain income to the next financial year or structure your salary in a way that minimizes your taxable income.
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What Are the Tax Implications if You Earn More Than ₹12 Lakh?
If your taxable income exceeds ₹12 lakh, you will no longer be eligible for the Section 87A rebate. However, you can still take advantage of other deductions and exemptions to reduce your overall tax liability. The tax slabs for higher income brackets come into play, and tax planning becomes essential to minimize the tax burden.
Frequently Asked Questions (FAQs)
Q1. Who is eligible for the Section 87A rebate in Budget 2025?
Individuals with taxable income up to ₹12 lakh can avail of the Section 87A rebate in the new tax regime for the financial year 2025-26.
Q2. Can I still use the Section 87A rebate under the old tax regime?
Yes, the Section 87A rebate is available under both the new and old tax regimes. However, most salaried individuals find the new tax regime more beneficial due to the higher income limits and lower tax rates.
Q3. What happens if my taxable income exceeds ₹12 lakh?
If your taxable income exceeds ₹12 lakh, you will not be eligible for the Section 87A rebate. In such cases, the applicable tax rates from the new tax slabs will apply.
Q4. Can I claim other deductions along with the Section 87A rebate?
Yes, you can claim other deductions, such as those under Section 80C for investments, along with the Section 87A rebate, to reduce your taxable income further.
