Why Section 87A Is Important for Taxpayers

The Income Tax Department has released ITR Forms 1 to 5 and the Excel utilities for ITR-1, ITR-2, ITR-3, and ITR-4 for Assessment Year 2026-27 (Financial Year 2025-26). Taxpayers can prepare their returns offline using these utilities and upload them through the e-filing portal.

The due date for filing ITR for eligible non-audit taxpayers is July 31, 2026. Before submitting your return, it is important to understand the tax rebate available under Section 87A, which can substantially reduce or even eliminate your tax liability if you meet the prescribed conditions.

What Is the Section 87A Tax Rebate?

Section 87A provides a tax rebate, not a tax deduction or exemption.

Unlike deductions that reduce taxable income, a rebate directly reduces the amount of income tax payable after the tax has been calculated. The provision is intended to provide tax relief to individuals with lower or moderate taxable incomes.

The rebate is applied before adding the 4% Health and Education Cess.

Maximum Rebate Available

The amount of rebate depends on the tax regime selected by the taxpayer.

Under the Old Tax Regime

• Maximum taxable income eligible: ₹5 lakh

• Maximum rebate available: ₹12,500

If your taxable income does not exceed ₹5 lakh, your income tax liability can be reduced by up to ₹12,500 under Section 87A.

Under the New Tax Regime

• Maximum taxable income eligible: ₹12 lakh

• Maximum rebate available: ₹60,000

Individuals opting for the new tax regime can claim a rebate of up to ₹60,000 if their taxable income remains within the prescribed limit.

Who Can Claim the Rebate?

The benefit under Section 87A is available only to resident individual taxpayers who satisfy the prescribed income limits.

The rebate is not available to:

• Companies

• Hindu Undivided Families (HUFs)

• Non-Resident Indians (NRIs)

• Other non-individual taxpayers

Additionally, the rebate generally does not apply to income taxed at special rates, including certain capital gains and specified categories of income.

Income Not Eligible for the Rebate

Taxpayers should note that Section 87A cannot be used to reduce tax payable on certain types of income taxed under special provisions.

These typically include:

• Long-Term Capital Gains (LTCG) taxed at special rates.

• Short-Term Capital Gains (STCG) covered under specific provisions.

• Lottery winnings.

• Income from game shows or similar prize money.

• Other income taxed at special rates under the Income Tax Act.

Therefore, while calculating your final tax liability, it is important to separate regular taxable income from income that attracts special tax treatment.

How to Claim Section 87A While Filing ITR

Claiming the rebate is a straightforward process if you qualify.

Follow these basic steps:

1. Calculate your Gross Total Income.

2. Deduct eligible exemptions and deductions to arrive at your taxable income.

3. Select the applicable tax regime.

4. Enter your taxable income in the ITR form.

5. If your income falls within the eligible limit, claim the rebate under Section 87A.

6. Verify the final tax calculation before submitting the return.

The Income Tax Department has enabled this facility in multiple ITR forms, including ITR-2 and ITR-3, wherever applicable.

What Is Marginal Relief?

Taxpayers whose income slightly exceeds the rebate threshold under the new tax regime may still receive relief through the Marginal Relief provision.

This rule ensures that the additional tax payable does not become higher than the amount by which the taxable income exceeds the specified threshold.

Example

Suppose your taxable income is ₹12.15 lakh, which is ₹15,000 above the ₹12 lakh rebate limit.

Under the normal tax calculation, your tax liability may work out to approximately ₹62,250 before cess.

However, after applying Marginal Relief, the tax payable is restricted to the amount by which your income exceeds the rebate threshold. In this example, the tax is reduced to ₹15,000. After adding the 4% Health and Education Cess, the total tax liability becomes ₹15,600, resulting in significant savings.

Final Takeaway

Section 87A remains one of the most valuable tax-saving provisions for eligible individual taxpayers. Those opting for the new tax regime may receive a rebate of up to ₹60,000, while taxpayers under the old regime can claim up to ₹12,500, provided they satisfy the prescribed income conditions.

Before filing your Income Tax Return, carefully calculate your taxable income, choose the appropriate tax regime, and check whether you qualify for the rebate or marginal relief. Understanding these provisions can help you reduce your tax burden and avoid unnecessary errors while filing your ITR.