Tag INCOME TAX REBATE

In the 2020 budget, the Indian government introduced a new tax regime to simplify the tax system. Taxpayers have the option to choose between the old and new tax regimes under the existing tax system. Both regimes use different methods for calculating income taxes, and their tax slabs and deductions differ; each tax system has unique advantages over the others.

The old regime permitted several exemptions and deductions. The new regime, on the other hand, aims for a simple process of filing by eliminating most of these deductions while offering reduced tax rates. A major advantage of the new system for FY 2025–2026 is that the tax burden is zero for incomes up to ₹12,00,000.

Old Tax Regime

The traditional Indian tax system is referred to as the “old tax regime”. The HRA, LTA, Sections 80C and 80D, and other exemptions and deductions are available to taxpayers under this regime to reduce their taxable income and, consequently, their tax liabilities. The old and new tax systems are offered to the taxpayers according to their choice.

New Tax Regime

In 2020, the new tax system went into effect. Tax rates are lowered for all income levels. Most exemptions and deductions, including HRA, LTA, 80C, 80D, and others, are eliminated, somehow. This led to a lack of interest in the new tax system. Currently, the default tax system is the new one as well. In Budgets 2023 and 2024, the government made a few changes to increase the regime’s stability.

Features	Old Tax Regime	New Tax Regime (FY 2025-2026)
Tax slabs	Higher	Lower
Deductions/Exemptions	Numerous deductions and exemptions for various investments, expenses, and savings. These include deductions under Sections 80C, 80D, 80E, LTA, and house rent allowances.	Restricted major deductions or exemptions.
Standard Deduction	₹50,000	₹75000
Income eligibility for rebate u/s 87A	Up to ₹5,00,000 Rebate: 12,500	Up to ₹12,00,000 Rebate: 60,000
Complexity	Complex due to various deductions	Simplified tax filing
Best for	People who are claiming and paying home loan interest, HRA, etc.	People who do not claim HRA, House property loss due to loan repayment, etc.

Which regime is best to choose?

You should consider several criteria while deciding between the new and old tax regimes:

• Level of Income: Determine your yearly income and compare it to the tax slabs under the two regimes.
• Financial Objectives: Think about your financial goals. This can involve making a long-term investing plan or setting aside money for retirement. Through deductions, the previous administration promoted smart saving.
• Financial responsibilities: The old regime might have been preferable if planning for home loan, the income structure consists of HRA, where Sukanya samriddhi scheme is found more appropriate to investment for girl child, or any other financial planning.
• Tax Deductions: Speak with a financial counsellor or use a tax calculator. Before choosing, you can use this to compare the actual taxes due under the two regimes.

Tax slab for financial year 2025 – 2026

New Tax Regime

The revised tax slabs under the new regime that are applicable from 1st April 2025 are as follows:

Tax Slab	Tax Rate
Upto  Rs. 4,00,000	Nil
Rs. 4,00,001 – Rs. 8,00,000	5%
Rs. 8,00,001 – Rs. 12,00,000	10%
Rs. 12,00,001 – Rs. 16,00,000	15%
Rs. 16,00,001 – Rs. 20,00,000	20%
Rs. 20,00,001 – Rs. 24,00,000	25%
More than 24,00,000	30%

Old Tax Regime

The tax slabs under the old regime is unchanged for AY 2025-26 and AY 2026-27 are as follows:

Tax Slab	Tax Rate
Upto  Rs. 2,50,000	Nil
Rs. 2,50,001 – Rs. 5,00,000	5%
Rs. 5,00,001 – Rs. 10,00,000	20%
Rs. 10,00,001 – Rs. 15,00,000	30%
More than 15,00,000	30%

How to chose which Regime is better for you?

Taxpayers must know that NEW TAX REGIME has been set as default for all eligible taxpayers. One who wants to opt for the OLD TAX REGIME for tax computation, must select “OPT OUT” option within the due date of the return.

Also, the Taxpayer must mention Date of filing and Acknowledgement Number of the FORM 10-IEA for the same.

Disclaimer: The content here is only for reference and is subject to update time to time. To get to know the tax liability, consult your professional advisor or connect to our operation team via 91-9267970588 or taxacumen.consultancy@gmail.com

Introduction

A tax deduction granted by Section 87A of the Income Tax Act, 1961 to Indian residents (it is not applicable to HUFs, businesses, or firms) whose total income for a financial year does not exceed ₹5,00,000. This ceiling limit is for the old tax regime. If your yearly income is ₹5 lakh or less, you are eligible to receive a deduction on the income tax that you owe to pay. The deduction is equal to either ₹12,500 or 100% of the tax owed, whichever is less.

After deducting other expenses, such as those under Section 80C or 80D, this deduction is applied. Your income may therefore be exempt from income tax altogether if it falls below the ₹5 lakh threshold. But if your income even slightly exceeds ₹5 lakh, you would not be qualified for this rebate.

The Indian Government is promoting the new tax regime to follow for tax payers to provide many additional benefits for the same. In this context, the limit of 87A has been increased for those who opt for the new tax regime. The said limits according to the relevant year is being discussed here in the article below.

Key Points for Old Tax Regime

• Only applicable to individuals who are Indian residents and does not apply to Hindu Undivided  Family (HUF’s), Companies, or firms.
• Yearly total income is 5 lakh or less,
• Deduction is equal to either ₹12,500 or 100% of the tax owed, whichever is less,
• Deductions (like 80C, 80D, HRA) is allowed

*There is no change in limit for those who opt for the old tax regime for this particular exemption to be claimed. This above said limit is applicable to FY 2024- 2025 and FY 2025-2026 as well.

Key Points for New Tax Regime

• Only applicable to individuals who are Indian residents and does not apply to Hindu Undivided Family (HUF’s), Companies, or firms,
• Yearly total income is 7 lakh or less. (for FY 2024-20205)
• Deduction is equal to either ₹25,000 or 100% of the tax owed, whichever is less
• Deductions (like 80C, 80D, HRA) is not allowed (except NPS, EPF, standard deduction etc).

*In budget 2025, FM raised the limit of income to ₹ 12 Lacs for the exemption under section 87A from the Financial year starting from  1st April 2025, i.e. for FY 2025-2026 and rebate of Rs. 60,000 or 100%, whichever is less is allowed under the new regime for the same. 

Standard Deduction

Introduction: Pensioners and salaried individuals are allowed to claim the standard deduction without requiring proof or documentation from the salary or pension part of income. Here as well, there are two limits that have been provided to tax payers on the basis of old and new tax regimes. By lowering the gross salary, this deduction lowers the taxable income.

Eligibility: Only pensioners and salaried individuals are eligible for the deduction of 75,000 under the new tax regime and 50,000 for old tax regime.

For example, a salaried person making ₹7.75 lakh a year would qualify for the full ₹25,000 refund under Section 87A since their taxable income would be ₹7 lakh after the standard deduction for the year 2024 – 2025 as a financial Year.

Marginal Relief under Section 87A

Marginal relief has been introduced for those taxpayers who earn a little bit more than the rebate maximum (such as ₹7,01,000 under the new regime) from having to pay more tax than the additional income. To prevent this scenario, it has been provided.

Also, there is no provision of marginal relief for taxpayers who opt for the old regime, if income exceeds ₹5,00,000 even with ₹1. This benefit is available for the new tax regime taxpayers.

In case, the taxpayer is earning ₹5,00,001 under the old tax regime after all the deductions other than 87A, the person needs to pay tax on ₹5,00,001 ignoring the benefit of 87A. The taxpayer does not fall for the limit here to claim section 87A.

Example of Marginal Relief

• Income: ₹7,00,000 → Tax = ₹0 (after rebate)
• Income: ₹7,01,000
• Tax on ₹7,01,000 = ₹25,050
• Extra income = ₹1,000
• Extra tax = ₹25,050

The provision of marginal relief helps to avoid this unjust burden. The amount of tax that must be paid cannot exceed the amount which would be payable for the income of 7,00,000 and the minor excess income earned over the year. This means that instead of paying ₹25,050 in taxes, the individual will only pay ₹1,000.

Feature	Old Tax Regime	New Tax Regime (FY 2024-2025)
Eligibility	Resident Individuals	Resident Individuals
Rebate Income Limit	Total income ≤ ₹5,00,000	Total income ≤ ₹7,00,000
Maximum Allowable Rebate	₹12,500	₹25,000
Marginal Relief Available?	Not specifically stated	Yes, provided to avoid paying more tax on minor excess income
Deductions (like 80C, 80D, HRA)	Allowed	Not allowed (except NPS, EPF, standard deduction etc.)
Best for Whom?	Those whose income is below ₹5 lakh due to deductions	Those with incomes up to ₹7 lakh and no or few deductions

How to File a Section 87A Tax Rebate Claim

Step 1: Figure out how much money you made overall during your financial year.

Step 2: Reduce the amount of your tax deductions for investments, tax savings, etc.

Step 3: After deducting the tax deductions, calculate your total taxable income.

Step 4: Fill out your ITR by declaring your gross income and tax deductions.

Step 5: If your total income stays below certain thresholds, you can claim a tax refund under section 87A.

Disclaimer: The content here is only for reference and is subject to update time to time. To get to know the tax liability, consult your professional advisor or connect to our operation team via 91-9267970588 or taxacumen.consultancy@gmail.com