ITR filing FY 2025-26: Before filing your income tax return, it is important to be aware of the applicable income tax rates and slabs under both the new and the old income tax regime. This is particularly relevant for salaried taxpayers earning below a certain level of income – what if your salary is applicable for ‘zero tax’?The limits for ‘zero tax’ vary as per the income tax regime you opt for. It’s also important to know that this is different from the basic tax exemption limit. So how can you claim a ‘zero tax’? Here’s where the rebate under Section 87A of the Income Tax Act comes in.
What is rebate under Section 87A?
If you opt for the new income tax regime, then the income up to Rs 12 lakh is tax-free. However, the basic exemption is Rs 4 lakh. Which means that if your income is say Rs 9 lakh, then you will have to claim eligibility for zero tax liability.Also Read | ITR filing FY 2025-26: Can you switch between new and old income tax regime every year? This is where the rebate under Section 87A comes in. It provides tax relief to resident individuals whose total income is less than the prescribed limits. How does it work? Hitesh Sharma, Partner, Vialto Partners says that the tax (before cess) is first calculated according to the applicable tax rates and then reduced by the rebate available under section 87A.
- Under the new income tax regime, individuals with total income up to Rs 12 lakh can claim a rebate of up to Rs 60,000. This results in zero or no tax liability.
- Under the old tax regime, a rebate of up to Rs 12,500 is available for individuals with taxable income up to Rs 5 lakh.
Marginal relief for taxpayers under new tax regime
Additionally, under the new tax regime, apart from the rebate available for income up to Rs 12 lakh, marginal relief provides protection to individuals whose income slightly exceeds this limit.“Marginal relief ensures that if the income goes above Rs 12 lakh, the tax payable is limited to the amount by which the income exceeds Rs 12 lakh. This marginal relief is available only if the total taxable income is less than Rs 12,70,588,” Hitesh Sharma tells TOI.Let’s understand this better with the help of some examples and income levels:
| Particulars | Illustration 1 | Illustration 2 | Illustration 3 | Illustration 4 | Illustration 5 |
| Regime | Old regime | Old regime | New
Regime |
New
Regime |
New
Regime |
| Gross Total Income | 7,00,000 | 7,45,000 | 12,75,000 | 12,77,000 | 13,45,588 |
| Deductions/Exemptions* | 2,00,000 | 1,50,000 | 75,000 | 75,000 | 75,000 |
| Total Taxable Income | 5,00,000 | 5,45,000 | 12,00,000 | 12,02,000 | 12,70,588 |
| Tax before cess | 12,500 | 21,500 | 60,000 | 60,300 | 70,588 |
| Less: Rebate u/s 87A | 12,500 | – | 60,000 | 58,300 | – |
| Tax before cess | – | 21,500 | NIL | 2,000 (after marginal
relief) |
70,588
(marginal relief not available) |
*includes standard deduction of Rs 50,000 and section 80C deductions of Rs 1.5 lakh totaling to Rs 2 lakh under the old tax regime and standard deduction of Rs 75,000 for new tax regime. These illustrations apply for Financial Year 2025-26 (Assessment Year 2026-27).Some quick points to note in this regard are:
- Under the new income tax regime, the rebate is not available on income taxed at special rates such as capital gains or winning from lotteries.
- Under the old tax regime, the rebate can be claimed against tax on the total income, except for long-term capital gains arising from transfer of equity shares, units of equity-oriented fund or business trust as provided under Section 112A of the Act.
- Section 87A of the Income Tax Act, 1961 has been replaced by Section 156 of the Income Tax Act, 2025 with effect from 1 April 2026. This will be applicable for FY 2026-27.
Also Read | ITR filing FY 2025-26: What documents are required to file your income tax return? Quick checklist