Income Tax Rebate Under Section 87A - Are NRIs Eligible For It?

An income tax rebate is a tax reduction available to resident taxpayers earning income within the 10% tax slab. Under the old tax regime, a rebate of Rs 12,500 is available for an income up to Rs 5 lakh. Under the new tax regime, a rebate of Rs 60,000 is available for an income up to Rs 12 Lakh.

However, NRIs are not eligible. Even if an NRI's total income is below ₹5 lakh under the old regime or ₹12 lakh under the new regime, the rebate under Section 87A cannot be claimed because the provision applies only to resident individuals.

In this blog, we will cover key concepts related to the Section 87A rebate, its eligibility criteria, how to claim the income tax rebate, and more.

What is Section 87A Rebate?

An income tax rebate is somewhat like a deduction from the total tax payable by an individual. Unlike a tax deduction, which reduces your taxable income, a rebate directly lowers your tax liability, resulting in a significant reduction in the final tax payable. Taxpayers can claim a tax rebate if they have overpaid their taxes or are eligible for a tax credit.

In a nutshell

• Section 87A provides a tax rebate to eligible resident individual taxpayers whose total taxable income does not exceed the prescribed threshold under the applicable tax regime.
• Under the new tax regime, up to Rs 12 lakh, a Rs 60,000 rebate is available, and under the old tax regime, for income earned within Rs 5 lakh, a Rs 12,500 rebate is available.
• Any resident taxpayer within these income levels technically does not have to pay any income tax in India.
• The rebate can be applied to the total tax before adding a health and education cess of 4%.

Who Can Claim Section 87A Rebate?

The following is the eligibility criteria for the rebate:

1: Only resident taxpayers are eligible to avail a rebate under section 87A

2: Ensure that under section 87A, the rebate is available to taxpayers whose taxable income does not exceed:

• Rs 12 lakh under the new tax regime and
• Rs 5 lakh under the old tax regime.

3: A rebate applicable under Section 87A cannot be adjusted against tax on long-term capital gains under Section 112A.

4: The rebate amount will be lower than the limit specified under Section 87A or the total income tax payable (before applying cess).

Rebate Limit Under Old vs New Tax Regime

The income tax rebate limit under Section 87A varies between the new and old tax regimes for FY 2025-26.

1: New Regime

• Under the new tax regime for FY 2025-26, a taxpayer is eligible for a tax rebate of up to Rs 60,000.
• A resident taxpayer with a taxable income of up to Rs 12 lakh will have zero income tax liability.
• Ensure that the rebate allowed under the new tax regime shall not exceed the total tax payable before cess.

2: Old Tax Regime

• Under the old tax regime, for FY 2025-26, the income tax rebate is up to Rs 12,500.
• With respect to the rebate under the old tax regime, the taxable income of up to Rs 5 lakh is effectively tax-free.
• Taxpayers must ensure that the rebate allowed must not exceed the total tax payable before cess in any case.

How to Claim Section 87A Rebate?

The following are the steps to claim an income tax rebate in FY 2025-26:

1: For the financial year, accurately calculate your gross total income.

2: Reduce your tax deduction for tax savings, investments, etc.

3: Compute and get the total taxable income after reducing the tax deductions.

4: Along with your gross income, declare the tax deduction in ITR.

5: As a taxpayer, you can claim a tax rebate under Section 87A if your total income does not exceed the specified limits. (Please know that if your income does not exceed the threshold, the rebate under Section 87A is automatically calculated and deducted by the portal.)

The Income Tax Rebate Example

With an example, let us understand how rebates work under the new and old tax regimes for AY 2026-27.

Marginal Relief Under the New Tax Regime

If a taxpayer's total income exceeds Rs 12 lakhs and the total tax exceeds the excess over Rs 12 lakhs, then the tax will be limited to the excess over Rs 12 lakhs.

In a nutshell, when the extra tax payable exceeds the extra income above Rs 12 lakh, the taxpayer is only required to pay the excess income above Rs 12 lakh.

This concept is known as the marginal relief allowed on rebate

The following are the steps to calculate the marginal relief on the rebate given below.

1: Starting with calculating the excess above Rs 12 lakh, Total income - Rs 12 lakh (A)

2: Compute income-tax liability on total income (B)

3: If B>A, a rebate under section 87A will be (B-A)

Let us understand this with an example

Income Not Eligible for Section 87A Rebate

Resident taxpayers must ensure that the section 87A rebate cannot be claimed against the tax liabilities on:

• Long-term capital gains (LTCG) under Section 112A of the IT Act.
• The short-term capital gains under Section 111A.
• Any income taxed at special rates, such as winnings from game shows, lottery, etc.

Income Tax Act 2025 Update

Section 156 of the Income Tax Act 2025 encapsulates the provisions of Section 87A. However, for income earned up to 31 March 2026 (FY 2025-26), the provisions of the Income tax Act 1961 need to be taken into consideration. This is because the concerned income was earned before the new Income Tax Act came into force.

The Bottom Line

The rebate under Section 87A does offer a valuable opportunity to reduce your income tax liability. As a taxpayer, you understand the eligibility criteria, and by maximizing deductions, you can minimize your tax burden while remaining compliant. However, NRIs must ensure that the tax rebate under Section 87A is not applicable to them.

As an NRI, if you are confused about the tax deductions and exemptions that apply to you, connect with Savetaxs. Our experts will help you prepare your tax returns, deductions, and exemptions to ensure compliance with Indian and foreign tax laws. The expert will calculate deductions under section 80C, 80D, and more, manage your TDS on rental income, and help you claim DTAA treaty benefits.

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