The 2025 Union Budget has revised the Section 87A tax rebate under the Income Tax Act of 1961. For the new tax regime, resident individuals with taxable income up to Rs. 12 lakh will now be eligible for the rebate in FY 2025-26 (AY 2026-27), a significant increase from the previous limit of Rs. 7 lakh in FY 2024-25 (AY 2025-26). This adjustment will result in lower tax liabilities for eligible taxpayers.
Budget update - Financial year 2025-2026
- Increased rebate: The income tax rebate for individuals under the new tax regime has been increased to Rs. 60,000 for the financial year 2025-2026.
- Income limit: This rebate applies to individuals with a taxable income of up to Rs. 12 lakh under the new tax regime.
- Special rates exclusion: The Rs. 60,000 rebate is not applicable to income that is taxed at special rates.
- Marginal relief: The concept of marginal relief on the rebate continues to be applicable.
What is an income tax rebate?
Income tax rebate refers to a deduction from the total tax payable by an individual. Unlike tax deductions that reduce taxable income, rebates directly decrease the tax liability, resulting in a reduction of the final tax payable. Taxpayers can claim a tax rebate if they have overpaid taxes or if they are eligible for a tax credit.
What is Section 87A rebate for Financial Year (FY) 2025-26 and Assessment Year (AY) 2026-27?
The Union Budget 2025 has increased the tax rebate limit under Section 87A of the Income Tax Act for resident individuals opting for the new tax regime. For FY 2025-26 (AY 2026-27), the rebate is now available for those with taxable incomes up to Rs. 12 lakh, up from Rs. 7 lakh in the previous financial year. This allows individuals with incomes up to Rs. 12 lakh to effectively pay no income tax. The rebate under the old tax regime remains at Rs. 12,500 for individuals with taxable incomes up to Rs. 5 lakh.
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