Are you wondering how you can pay zero tax on income up to ₹7 lakh (and soon, even higher) under Section 87A? Here’s a step-by-step guide for the Assessment Year 2025-26 that explains how the Section 87A income tax rebate ensures that many salaried and self-employed individuals pay no tax if their income is within the prescribed limit under the new regime.

What is Section 87A?

Section 87A is a provision that offers a direct rebate (reduction) on tax payable, helping you reduce your income tax liability to zero if your net taxable income stays under certain limits.

Tax Rebate under Section 87A: Current Limits

• Financial Year 2024-25 / AY 2025-26

  • Old Tax Regime:

    • If your taxable income (after deductions like 80C, 80D, Standard Deduction, etc.) is up to ₹5 lakh, you get a rebate up to ₹12,500. Your tax payable becomes zero.

  • New Tax Regime:

    • If your total income (before most deductions) is up to ₹7 lakh, you get a rebate up to ₹25,000. Your tax payable is reduced to zero.

• Changes from Budget 2025 (applicable for next year: FY 2025-26 / AY 2026-27):

  • Under the new tax regime, income up to ₹12 lakh will be eligible for a rebate up to ₹60,000, meaning zero tax till ₹12 lakh.

For AY 2025-26 (filing this year), the ₹7 lakh new regime and ₹5 lakh old regime limits apply.

How Does the Section 87A Rebate Work?

1. Calculate your total taxable income (after deductions, if using the old regime).

2. Compute tax as per slab rates.

3. If your income is within the limit, the rebate lowers your tax payable to zero (up to the maximum rebate allowed).

4. Health and Education Cess (4%) applies only if there’s any remaining tax after rebate.
   For most eligible taxpayers, no cess is due since the rebate wipes out your tax.

Example Calculation (New Regime, FY 2024-25 / AY 2025-26)

Suppose your salary income is ₹7 lakh.

• Tax on ₹7 lakh at the new regime rates = ₹25,000.

• Section 87A rebate = ₹25,000.

• Your final tax liability = ₹0.

If your income is ₹7,10,000, then you will start paying tax on the amount exceeding ₹7 lakh, after adjusting for the rebate.

Who Can Claim This Rebate?

• Available only to individual resident taxpayers (NOT HUFs, companies, LLPs, or NRIs).

• Income must be below or equal to the threshold for the relevant regime in the relevant assessment year.

• Senior citizens aged 60-80 years can claim it. Super senior citizens (80+) cannot.

Standard Deduction and Section 87A (New Regime)

• Standard deduction (₹50,000) is available even in the new tax regime.

• For salaried individuals:

  • Gross salary up to ₹7,50,000

  • Less standard deduction (-₹50,000)

  • Net taxable income = ₹7,00,000 → Full 87A rebate, tax is zero.

Key Points and Mistakes to Avoid

• Don’t confuse “taxable income” (after deductions/exemptions) with gross income.

• Claim all eligible deductions first (if using old regime) and ensure your net taxable income is within the eligible limit.

• Section 87A is auto-applied during online ITR filing; verify it in your computation.

• Check if you are under the old or new regime, as the rebate limits and eligibility differ.

• File your return, even if tax is zero, for loan/visa proof and refunds.

In Short:

• For AY 2025-26 (filing by Sept 15, 2025):

  • Old regime: Up to ₹5 lakh – NO TAX via ₹12,500 rebate.

  • New regime: Up to ₹7 lakh (after standard deduction) – NO TAX via ₹25,000 rebate.

• From next financial year, the new regime no-tax limit will rise dramatically to ₹12 lakh, thanks to an increased rebate of ₹60,000.

Maximize your Section 87A benefit by smart planning and correct regime selection.
Consult a CA if your income is just above the threshold—you might be able to use deductions to become eligible for zero tax!

Stay updated, avoid mistakes, and file your ITR in time to enjoy hassle-free compliance.

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