ITR Filing: Understanding Section 87A Rebate for Zero Tax Payment in New and Old Tax Regimes
Individuals filing their income tax returns for the financial year 2025-26 should be aware of the income tax rates and slabs under both the new and old regimes. Under the new regime, individuals with a total income of up to Rs 12 lakh can claim a rebate of up to Rs 60,000, effectively resulting in zero tax liability for many taxpayers.
Understanding Section 87A Rebate
The rebate under Section 87A is crucial for taxpayers opting for the new income tax regime. While the basic exemption limit is set at Rs 4 lakh, individuals earning up to Rs 12 lakh can benefit from this rebate. For example, if a taxpayer has an income of Rs 9 lakh, they can claim eligibility for zero tax liability. Hitesh Sharma, Partner at Vialto Partners, explains that the tax is calculated based on applicable rates before cess, and then the rebate under Section 87A is applied to reduce the tax owed.
Under the old tax regime, a rebate of up to Rs 12,500 is available for individuals with taxable income up to Rs 5 lakh. This creates a significant difference in tax liability between the two regimes, particularly for those with incomes near these thresholds.
Marginal Relief for Higher Incomes
In addition to the rebate, the new tax regime offers marginal relief for individuals whose income slightly exceeds Rs 12 lakh. This provision ensures that the tax payable is limited to the amount by which the income exceeds Rs 12 lakh, provided the total taxable income remains below Rs 12,70,588. Sharma elaborates that this marginal relief is designed to prevent a sudden increase in tax liability for those just above the threshold.
Examples illustrate how marginal relief operates. For instance, a taxpayer with a gross total income of Rs 12,75,000 may only pay tax on the amount exceeding Rs 12 lakh, thus benefiting from this relief mechanism.
Key Points to Remember
Taxpayers should note that under the new income tax regime, the rebate is not applicable to income taxed at special rates, such as capital gains or lottery winnings. Conversely, the old regime allows rebates against total income, excluding certain long-term capital gains. Furthermore, Section 87A of the Income Tax Act, 1961 will be replaced by Section 156 of the Income Tax Act, 2025, effective from April 1, 2026, impacting the financial year 2026-27.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
