The Indian Union Budget 2025 has introduced a wave of changes that promise to benefit taxpayers across the country. Among the most impactful adjustments is the Section 87A tax rebate, a provision designed to reduce the tax burden on eligible individuals. If you’re earning a salary or running a small business, this could significantly lower your income tax liability and even bring it to zero.
But what exactly is the Section 87A rebate, and how can you take full advantage of it? In this article, we’ll walk you through everything you need to know about this rebate, who qualifies, and how you can claim it. Whether you’re a salaried employee, self-employed, or a business owner, understanding Section 87A can help you maximize your tax savings and make your money work harder for you.
Unlock Massive Tax Savings
| Key Point | Details |
|---|---|
| Section 87A Rebate Limit | Increased to ₹60,000 for taxpayers earning up to ₹12 lakh in taxable income |
| Eligible Income Range | Taxable income up to ₹12 lakh can qualify for a ₹60,000 rebate |
| Eligible Taxpayers | Available to individual taxpayers and Hindu Undivided Families (HUFs) under the new tax regime |
| Impact on Tax Bill | If your taxable income is ₹12 lakh or less, your tax liability could be reduced to zero |
| Taxable Income Definition | Income after applying exemptions, deductions (like 80C), and the standard ₹75,000 deduction |
| Official Resource | Income Tax Department |
The Section 87A rebate introduced in the Union Budget 2025 is an excellent opportunity for individuals earning up to ₹12 lakh to lower their tax liabilities. By understanding how it works and following the simple steps to claim it, you can reduce your tax burden significantly, making your money go further. Whether you’re a salaried individual or a small business owner, this rebate can help you retain more of your hard-earned money.
This rebate is a win for taxpayers, especially those in the middle-income group, and it simplifies the overall tax filing process. Stay informed about the latest changes in tax laws to make sure you’re always on the right side of the tax system, and consider using Section 87A as a powerful tool to optimize your tax planning.
What is Section 87A, and Why Does it Matter?
The Section 87A tax rebate is a government initiative designed to provide relief to low and middle-income taxpayers. The rebate was initially introduced to reduce the financial burden on individuals in the lower-income brackets. As per the Union Budget 2025, the rebate has been enhanced significantly, giving taxpayers a chance to reduce their tax liabilities more than ever before.
The rebate applies to individuals with a taxable income of ₹12 lakh or less. If you qualify, you can claim a deduction of up to ₹60,000, making it possible to eliminate your tax liability completely. This is especially useful for middle-income earners who may have felt the pinch of the higher income tax rates in the past.
Key Changes in Budget 2025
One of the most notable changes in the Budget 2025 is the increase in the rebate limit under Section 87A. Here’s a breakdown of the key updates:
- Income Limit Raised: Previously, the Section 87A rebate was available for taxable incomes up to ₹7 lakh. However, this limit has been increased to ₹12 lakh in the 2025 Budget. This means that more taxpayers can now qualify for the rebate.
- Rebate Amount Increased: The rebate amount has also been raised from ₹25,000 to ₹60,000. This is a substantial increase that will help taxpayers save even more money.
For example, if you’re a taxpayer earning ₹12 lakh or less after deductions, you can now enjoy a rebate of ₹60,000 on your income tax. For individuals in this income bracket, this can effectively reduce their tax bill to zero.
How Does Section 87A Rebate Work?
To fully understand how Section 87A works, let’s walk through an example:
Scenario 1: Taxpayer Earning ₹12 Lakh
- Gross Income: ₹12,75,000 (including salary and other sources)
- Standard Deduction: ₹75,000
- Taxable Income: ₹12,00,000 (after the standard deduction)
- Tax Payable (Before Rebate): ₹60,000 (according to the new tax regime for this income range)
- Section 87A Rebate: ₹60,000
In this case, the total tax payable becomes zero after applying the Section 87A rebate. This makes the rebate an excellent tool for salaried individuals and small businesses in the ₹12 lakh income bracket.
Step-by-Step Guide to Claiming Section 87A Rebate
Now that you understand how Section 87A works, here’s a detailed guide on how to claim it:
1. Calculate Your Gross Total Income
The first step is to determine your gross income. This includes all earnings from various sources, such as:
- Salary or wages
- Business income
- Rental income
- Capital gains (after deductions)
- Any other income
2. Apply Eligible Deductions
Next, apply deductions under various sections like 80C (for investments in PPF, ELSS, etc.), 80D (for insurance premiums), and any other applicable deductions. These deductions reduce your gross income and help in lowering your tax liability.
3. Calculate Your Taxable Income
After applying the eligible deductions, you’ll arrive at your taxable income. This is the amount on which your tax will be calculated.
4. Apply the New Tax Slabs
Now, based on the new tax slabs, calculate your tax payable. If your taxable income is ₹12 lakh or less, you’ll qualify for the Section 87A rebate.
5. Claim the Rebate
Once you’ve calculated your tax payable, you can claim the Section 87A rebate directly while filing your Income Tax Return (ITR). The rebate will be subtracted from the total tax payable.
6. File Your Income Tax Return
Ensure you file your ITR on time to avoid penalties and interest. The rebate will be automatically applied when you submit your return if your taxable income is below ₹12 lakh.
Who is Eligible for Section 87A?
To qualify for the Section 87A rebate, you need to meet the following criteria:
- Resident Indian: Only residents are eligible for this rebate. Non-Residents (NRIs) cannot claim this benefit.
- Income Threshold: Your taxable income should be ₹12 lakh or less to qualify for the full ₹60,000 rebate.
Common Mistakes to Avoid
While claiming the Section 87A rebate is straightforward, taxpayers often make some common mistakes that can delay or even cancel the benefit:
- Incorrect Calculation of Taxable Income: Make sure you account for all eligible deductions and exemptions before calculating your taxable income.
- Missing the Income Tax Filing Deadline: Always file your tax returns on time to avoid penalties and interest.
- Not Checking Eligibility for Rebate: Ensure you meet the income threshold and are a resident taxpayer.
How Section 87A Rebate Affects Your Tax Planning
The Section 87A rebate is an important tool in tax planning, especially for individuals who earn up to ₹12 lakh annually. By leveraging this rebate, taxpayers can effectively plan their finances to reduce tax outflow and retain more of their income for savings, investments, or expenditures. Here are a few strategies you can use to incorporate the rebate into your tax planning:
- Maximize Deductions: To qualify for the Section 87A rebate, your taxable income should not exceed ₹12 lakh. You can use tax-saving investments like Public Provident Fund (PPF), National Savings Certificate (NSC), and Employee Provident Fund (EPF) to lower your taxable income and retain eligibility for the rebate.
- Opt for the New Tax Regime: The new tax regime introduced in Budget 2025 is more beneficial for individuals earning up to ₹12 lakh. By opting for this regime, you can enjoy lower tax slabs, and the Section 87A rebate will be an additional benefit.
- Review Your Income Regularly: Keep track of your income, deductions, and exemptions. A slight change in your income might affect your eligibility for the rebate. Consider scheduling an annual review with a tax consultant to make informed decisions about your tax-saving options.
Frequently Asked Questions (FAQs)
Q1: Can I claim Section 87A if my income exceeds ₹12 lakh?
A: No, the Section 87A rebate is only available to taxpayers with taxable incomes of ₹12 lakh or less.
Q2: Is the Section 87A rebate applicable to non-residents?
A: No, the rebate is only available to resident Indian taxpayers.
Q3: Can I claim this rebate along with other deductions?
A: Yes, the Section 87A rebate is applicable after considering other deductions like those under Section 80C, 80D, and other applicable sections.
Q4: How do I apply for the Section 87A rebate?
A: Simply calculate your taxable income, ensure it is ₹12 lakh or less, and apply the rebate while filing your Income Tax Return (ITR).
Q5: What happens if my taxable income exceeds ₹12 lakh?
A: If your taxable income exceeds ₹12 lakh, you will not be eligible for the Section 87A rebate. However, you can still claim other available deductions and exemptions to reduce your overall tax burden.
