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Rebate u/s 87A and Marginal Tax Relief — Explained
Budget 2025 has increased the rebate u/s 87A upto Rs 60,000 under New tax regime from FY 2025-26. As per Budget 2025, Marginal Relief is also provided in some cases.
Learn more on Rebate u/s 87A, Marginal Tax Relief, Computation and the differences.
This document covers
- What is Rebate u/s 87A?
- Conditions for claiming Rebate u/s 87A
- Amount of rebate u/s 87A
- Marginal Tax Relief
- Computation of Marginal Relief
- Difference between Rebate u/s 87A and Marginal Relief
Rebate — is a partial refund of the cost of an item
Marginal Tax Relief — a relief given to someone who is paying extra tax when the income is slightly high.
1. What is Rebate u/s 87A?
- Section 87A of Income Tax Act 1961 provides a tax rebate to individuals whose taxable income does not exceed specified limit.
- Section 87A is introduced as a relief measure for low-income individual taxpayers. The objective of introduction of 87A is to ensure that the individuals with lower income are not burdened with income tax, thus encouraging tax compliance and increasing disposable income.
2. Conditions for claiming Rebate u/s 87A
- Rebate u/s 87A is applicable to only "Resident individuals". Non-Residents or HUFs cannot claim rebate u/s 87A
- The rebate is applicable under both "Old" and "New" tax regimes. However, the income levels are different for old and new tax regime.
- The rebate is deducted from total tax payable before calculating education cess
3. Amount of rebate u/s 87A
The amount of rebate that can be claimed under old and new tax regime are different and it varies for the different financial years. The amounts of rebates that can be claimed over the years are as follows
NTR — New Tax Regime, OTR — Old Tax Regime
| Financial Year | Assessment Year | Maximum Taxable Income | Maximum Tax Rebate | Type of Tax Regime |
|---|---|---|---|---|
| FY 2019-20 | AY 2020-21 | 5,00,000 | 12,500 | OTR |
| FY 2020-21 | AY 2021-22 | 5,00,000 | 12,500 | OTR & NTR |
| FY 2021-22 | AY 2022-23 | 5,00,000 | 12,500 | OTR & NTR |
| FY 2022-23 | AY 2023-24 | 5,00,000 | 12,500 | OTR & NTR |
| FY 2023-24 | AY 2024-25 |
|
| OTR & NTR |
| FY 2024-25 | AY 2025-26 |
|
| OTR and NTR |
| FY 2025-26 | AY 2026-27 |
|
| OTR and NTR |
NTR — New Tax Regime, OTR — Old Tax Regime
The rebate is applicable only if your net taxable income is below the above maximum income levels. If your income exceeds above levels, rebate u/s 87A is not applicable. You are required to pay taxes at applicable slab rates.
The rebate u/s 87A under Old Tax Regime is applicable to Normal Income and special rates of income also like short term capital gain, long term capital gains etc. except LTCG taxable @ 10%. However the rebate u/s 87A under New tax regime is applicable for Normal income but not applicable to special rates of income like short term capital gain, long term capital gains etc .
4. Marginal Tax Relief
- The purpose of Marginal relief means is to ensure that the amount of tax payable due to increase in taxable income should not exceed the amount of increase in taxable income.
- Marginal relief is available in case of New Tax Regime if the income exceed Rs 7 lakhs from FY 2023-24 and Rs 12 lakhs from FY 2025-26.
- Marginal Relief is applicable only to Resident individuals.
- Marginal Relief is applicable upto approximately Rs 7.28 lakhs upto FY 2024-25 and Rs 12,70,500 from FY 2025-26
5. Computation of Marginal Relief
The computation of marginal relief is as follows
- First the tax on total taxable income needs to be computed as per applicable slab rates
- Tax on Rs 7 lakhs (upto FY 2024-25)/ Rs 12 lakhs (from FY 2025-26 onwards) needs to be computed. The tax on this is 0
- Compute the difference between Total taxable income and Rs 7 lakhs/12 lakhs
- Deduct the Income exceeding Rs 7 lakhs/12 lakhs from total tax on taxable income (a-c). This will be marginal relief allowed.
- Deduct the total tax payable on taxable income from Marginal relief calculated (a-d). This will be total taxa payable
Refer Income Tax Calculator for calculations
6. Difference between Rebate u/s 87A and Marginal Relief
Rebate is the deduction from tax which is available to taxpayers having income upto Rs. 7 lakhs / 12 lakhs in the new regime.
Marginal relief ensures that taxpayers having income marginally higher than Rs. 7/ 12 lakhs do not pay tax more than the income in excess of 7/12 lakhs.