Section 87A of the Income Tax Act has been significantly amended by U/s 105 in the Finance Act 2025, effective from AY 2026‑27. The rebate limit has been enhanced to ₹60,000, and the income threshold raised to ₹12 lakh, but with restrictions on its applicability to special‑rate incomes like LTCG under Section 112A.
📌 Overview of Section 87A Amendment
· Old Provision (IT Act 1961): Rebate of up to ₹12,500 for individuals with income ≤ ₹5 lakh.
· New Provision (IT Act 2025 via U/s 105):
o Maximum rebate: ₹60,000
o Income threshold: ₹12,00,000
o Applicable only to resident individuals under the new tax regime (Section 115BAC 1A).
· Restriction: Rebate cannot reduce tax payable on special‑rate incomes (e.g., LTCG under Section 112A).
🔑 Key Changes Introduced by Finance Act 2025
1. Enhanced Rebate Amount
o Raised from ₹25,000 to ₹60,000.
o Provides substantial relief to middle‑class taxpayers.
2. Higher Income Eligibility
o Threshold increased from ₹7 lakh to ₹12 lakh.
o Expands rebate coverage to a larger taxpayer base.
3. Restriction on Special‑Rate Incomes
o Rebate applies only to slab‑rate incomes (salary, business, house property).
o Not applicable to LTCG under Section 112A (taxed at 12.5%).
4. Structural Reform
o IT Act 2025 replaces the IT Act 1961 with simplified language and reduced volume (536 sections vs. 700+ earlier).
⚖️ Practical Impact for Taxpayers
· Salary earners & small business owners: Significant relief if income ≤ ₹12 lakh.
· Investors with LTCG: Cannot offset tax on equity gains with rebate.
· Compliance: Taxpayers must compute rebate strictly under slab rates of Section 115BAC (1A).
📊 Comparison Table
Feature | Old Law (1961 Act) | New Law (2025 Act via U/s 105) |
Max Rebate | ₹12,500 | ₹60,000 |
Income Threshold | ₹5 lakh | ₹12 lakh |
Applicability | Resident individuals | Resident individuals under the new regime |
LTCG under 112A | Eligible | Not eligible |
Effective Year | AY 2020‑21 onwards | AY 2026‑27 onwards |
🚀 Transition Rules
· Effective Date: 1 April 2026 (AY 2026‑27).
· The Income Tax Act of 1961 will remain applicable for tax assessments up to 31 March 2026 under the repeal and savings provisions.
✨ Conclusion
The amendment to Section 87A by U/s 105 in the IT Act 2025 marks a progressive tax relief for middle‑income earners, while ensuring clarity and discipline in applying rebates. Although investors may feel restricted due to the exclusion of LTCG, the broader taxpayer base benefits from enhanced thresholds and simplified compliance.
👉 This change is a structural reform, not just a rate adjustment, and it reflects
❓ Frequently Asked Questions (FAQs)
1. What is Section 87A of the Income Tax Act 2025?
Section 87A grants a rebate on income tax to individuals who are residents of
2. Who is eligible for the rebate under Section 87A?
Only resident individuals opting for the new tax regime (Section 115BAC 1A) are eligible. Individuals who are non‑residents, as well as those following the old tax regime, are not entitled to claim this rebate.
3. What is the maximum rebate available after the amendment?
The maximum rebate has been increased to ₹60,000, effective from AY 2026‑27.
4. What is the income limit for availing the rebate?
Resident taxpayers earning up to ₹12,00,000 in total income can claim the rebate under Section 87A.
5. Does the rebate apply to long‑term capital gains (LTCG)?
No, the rebate cannot be applied to incomes that are taxed at special rates, including long‑term capital gains covered under Section 112A.
6. From which assessment year will the new rebate apply?
The amendment is effective from Assessment Year 2026‑27 (Financial Year 2025‑26).
7. How does the new rebate compare with the old law?
· Old Law (1961 Act): ₹12,500 rebate for income ≤ ₹5 lakh.
· New Law (2025 Act): ₹60,000 rebate for income ≤ ₹12 lakh.
8. Can senior citizens claim the rebate under Section 87A?
Yes, senior citizens who are resident individuals and fall under the new regime can claim the rebate, provided their income does not exceed ₹12 lakh.
9. What is the purpose of this amendment?
The amendment aims to provide greater tax relief to middle‑income earners, simplify compliance, and align with the government’s goal of a modernised tax regime.
10. What should taxpayers keep in mind while filing returns?
Taxpayers must:
· Opt for the new regime to claim the rebate.
· Ensure income is within the ₹12 lakh threshold.
· Exclude special‑rate incomes like LTCG when calculating rebate eligibility.
