Budget 2025 Bombshell: In a game-changing move for middle-income taxpayers, the Union Budget 2025 has increased the Section 87A rebate to ₹60,000, allowing many to enjoy zero income tax liability on incomes up to ₹12 lakh. This update is aimed at boosting disposable income and encouraging more taxpayers to shift to the new tax regime, which is now simpler and more rewarding for the salaried class and middle earners.
Let’s break down what this means for you, how to claim the rebate, and whether you fall among the lucky beneficiaries.
Budget 2025 Bombshell
| Key Details | Information |
|---|---|
| New Rebate Limit | ₹60,000 under Section 87A |
| Applicable to | Resident individuals opting for the new tax regime |
| Income Threshold for Rebate | Taxable income up to ₹12 lakh |
| Gross Income Possible (Salaried with ₹75,000 Standard Deduction) | ₹12.75 lakh |
| Old Regime Rebate | ₹12,500 for incomes up to ₹5 lakh (unchanged) |
| Zero Tax Liability | Achievable if taxable income ≤ ₹12 lakh under the new regime |
| Effective From | Financial Year 2025–26 |
| Official Website for Filing | https://www.incometax.gov.in |
What Is Section 87A Rebate and What Changed in Budget 2025?
Section 87A is a provision under the Income Tax Act that offers tax relief to small and middle-income taxpayers. Earlier, under the new tax regime, the rebate applied to incomes up to ₹7 lakh, with a limit of ₹25,000.
Budget 2025 has changed the game:
- The rebate limit has jumped to ₹60,000
- The eligible income ceiling has increased to ₹12 lakh
This effectively means any individual earning ₹12 lakh or less won’t pay a rupee in income tax, provided they choose the new tax regime.
New Income Tax Slabs for FY 2025–26 (Under the New Regime)
| Income Range | Tax Rate |
|---|---|
| Up to ₹4 lakh | 0% |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Who Will Benefit the Most From the New Section 87A Rebate?
1. Salaried Employees
Thanks to the standard deduction of ₹75,000, even people earning up to ₹12.75 lakh gross annually can enjoy zero tax liability.
Example:
If you earn ₹12.75 lakh per year, subtract ₹75,000 (standard deduction), and your taxable income becomes ₹12 lakh. Apply the ₹60,000 rebate under Section 87A, and you owe zero tax.
2. Freelancers & Self-Employed Individuals
Those with eligible business incomes and few deductions now have a real incentive to switch to the new regime, as it simplifies compliance and reduces liability.
3. Senior Citizens Below 60
Although they don’t get additional exemptions in the new regime, if their income is within the ₹12 lakh slab, they benefit just like younger taxpayers.
Who Cannot Avail the ₹60,000 Rebate?
This rebate is not universal. It only applies if you:
- Are a resident individual
- Choose the new tax regime
- Have total taxable income up to ₹12 lakh
Not Eligible If:
- You earn above ₹12 lakh and don’t qualify for marginal relief
- You opt for the old tax regime
- You have incomes taxed at special rates, like capital gains or lottery winnings
Budget 2025 Bombshell: How to Claim the ₹60,000 Section 87A Rebate in 2025
Step 1: Choose the New Tax Regime
While filing your ITR on the official Income Tax e-filing portal, select the new tax regime for FY 2025–26.
Step 2: Calculate Your Taxable Income
Deduct the standard deduction (₹75,000 for salaried) and other eligible deductions (if any) applicable under the regime.
Step 3: Apply the Rebate
If your taxable income is up to ₹12 lakh, apply the ₹60,000 rebate to reduce your tax liability to zero.
Step 4: File Your ITR
Finish e-verifying and submitting your return. The rebate is applied automatically in the tax calculation sheet if you’re eligible.
Old vs New Regime: Which Is Better in 2025?
Here’s a quick look at the comparison:
| Criteria | Old Regime | New Regime (Post Budget 2025) |
|---|---|---|
| Deductions like 80C, 80D | Allowed | Not allowed |
| Standard Deduction | ₹50,000 (₹75,000 in Budget 2025) | ₹75,000 for salaried |
| Section 87A Rebate | ₹12,500 for income ≤ ₹5 lakh | ₹60,000 for income ≤ ₹12 lakh |
| Tax Slabs | Higher and more complex | Simpler and lower (in early brackets) |
| Best For | Those with many deductions | Salaried with limited deductions |
In 2025, the new regime is now highly favorable for middle-class earners who don’t claim major deductions.
Social Security Payments Rise in April 2025: Discover How Much More You’ll Receive!
April 2025 COLA Payouts Increase — What It Means for Your Wallet
SASSA Drops Major 2025 Pension Update – What Every Senior Needs to Do NOW!
FAQs on Budget 2025 Bombshell
Q1. What is Section 87A of the Income Tax Act?
It is a rebate that reduces the total tax payable for eligible resident individuals. It directly lowers your tax liability, not the taxable income.
Q2. Is the ₹60,000 rebate applicable under the old regime?
No. The old regime still offers a rebate of ₹12,500 for income up to ₹5 lakh.
Q3. I earn ₹12.5 lakh annually. Can I still claim the rebate?
Yes, if you are salaried and claim the standard deduction of ₹75,000, your taxable income becomes ₹11.75 lakh, which is within limits. You can then avail the rebate.
Q4. Will I get a refund if my tax is less than ₹60,000?
The rebate is capped to reduce tax liability to zero, not beyond. So, no refund is given for any unused portion of the ₹60,000.
Q5. Is it mandatory to opt for the new regime to get this benefit?
Yes. This benefit is exclusive to those filing under the new tax regime.
