Income Tax: What is rebate under 87A which enables taxpayers earning upto ₹12 lakh to claim zero tax? An explainer

In Budget 2025, Finance Minister Nirmala Sitharaman revised the income slabs under the new tax regime, thus offering relief to the middle-class taxpayers.

Now, there is no income tax payable for those earning up to ₹12 lakh. However, if you have seen the tax slabs, you must have noticed that there is no income tax upto ₹4 lakh but there is 5 percent for income in the range of 4-8 lakh and 10 percent for income in the range of 8-12 lakh.

So, when there is no tax for income upto ₹12 lakh, why do these slabs suggest otherwise?

This happens because the tax payable gets nullified against the rebate offered upto ₹60,000. Beyond this rebate, the tax is payable.

Let us understand how this works.

These are the latest slab rates:

As the table above shows, there is tax payable for income in the range of ₹4 -8 lakh. This means ₹20,000 tax is payable for income upto 8 lakh. For the next ₹4 lakh, tax payable is 10 percent, which is another ₹40,000.

In total, tax payable becomes ₹60,000 (20,000 + 40,000). Now, rebate -- which is deducted against the tax component – under section 87A has been raised to ₹60,000.

During the Budget speech, Ms Sitharaman said, “It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to ₹12,00,000.”

This effectively means the rebate under section 87A which stands at ₹25,000 now is set to be raised to ₹60,000 once the Budget bill is passed in the lower house of Parliament.

So, what is rebate 87A?

Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87A​ will be lower of 100 per cent of income-tax liability or ₹60,000. In other words, if the tax liability exceeds this threshold, rebate will be given to the extent of Rs. 60,000 only.

It is also vital to note that no rebate will be offered when the taxable income is more than ₹12,00,000.

"As announced by budget 2025, if your Taxable Income is upto ₹12 lakhs, then you get tax rebate of ₹60,000. This makes your tax liability Zero. Also, no rebate is available on special rate incomes like short term capital gains on listed equity shares," says CA Pratibha Goel, partner of PD Gupta & Company, a Delhi-based CA firm.