Income Tax Rebate Under Section 87A : Union Budget 2025

Income Tax Rebate Under Section 87A : Union Budget 2025. The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has brought significant relief to middle-class taxpayers by increasing the tax rebate under Section 87A. Under the new provisions, individuals with a net taxable income of up to Rs 12 lakh will now pay zero tax under the new income tax regime. This move is set to benefit a large segment of salaried and self-employed individuals, increasing their disposable income and promoting financial stability. In this article, we have tried to cover how up to 12 lakh income will have zero income tax liability.
Key Highlights of the New Tax Rebate

Resident individuals with net taxable income up to Rs 12 lakh will no longer have to pay income tax.
Salaried individuals availing the standard deduction benefit of Rs 75,000 under the new tax regime will enjoy a tax-free threshold of Rs 12.75 lakh.
The previous tax rebate limit under the new tax regime was Rs 7 lakh, which has now been significantly raised.
The finance minister has increased the rebate limit but not the basic exemption limit.
Individuals earning above Rs 12.75 lakh will be subject to tax under the revised slabs.
The rebate amount under clause (a) of the first proviso to Section 87A has been increased from Rs 25,000 to Rs 60,000.

Revised Tax Slabs for FY 2025-26
With the new tax rebate structure in place, the government has also revised the tax slabs. The updated tax rates under the new tax regime are as follows:

Income Slab (Rs)

Tax Rate

0 to 4 lakh

Nil

4 lakh to 8 lakh

8 lakh to 12 lakh

10%

12 lakh to 16 lakh

15%

16 lakh to 20 lakh

20%

20 lakh to 24 lakh

25%

Above 24 lakh

30%

These revised slabs ensure that individuals earning between Rs 4 lakh and Rs 12 lakh will be taxed at a lower rate, which, when combined with the rebate under Section 87A, results in zero tax liability.
Detailed Explanation of the Tax Rebate
The increased rebate under Section 87A is applicable only to taxpayers earning up to Rs 12 lakh. The government has clarified that this rebate will not apply to special rate incomes such as capital gains, which continue to be taxed at different rates.
Impact of the Rebate
1. Normal Income vs. Special Income: The rebate applies to regular income such as salary, business profits, or other earnings classified under normal taxable income. However, income from capital gains and other special categories will continue to be taxed separately.
2. Complete Tax Exemption for Individuals Earning Rs 12 Lakh or Less: Individuals with an annual taxable income of Rs 12 lakh or lower will pay no tax, thanks to the enhanced rebate of Rs 60,000 from Rs. 25,000.
3. Threshold for Standard Deduction Benefit: Salaried taxpayers who claim the standard deduction benefit of Rs 75,000 will enjoy a tax-free threshold of Rs 12.75 lakh.
4. Taxation for Higher Incomes: If an individual's taxable income exceeds Rs 12 lakh, the tax liability will be calculated based on the new slabs without availing the rebate.
Examples of Tax Savings Under the New Regime

A taxpayer earning Rs 12 lakh will save Rs 80,000 in taxes, leading to 100% tax exemption.
An individual earning Rs 18 lakh will experience a tax reduction of Rs 70,000, approximately 30% of their previous tax liability.
For individuals earning Rs 25 lakh, the tax saving amounts to Rs 1.10 lakh, reducing their tax burden by 25%.

How This Affects Middle-Class Taxpayers?
The increased tax rebate under Section 87A is a significant step toward improving financial ease for middle-class individuals. The benefits include:
• More Disposable Income: Since individuals earning up to Rs 12 lakh will pay zero tax, they will have additional disposable income, which can be used for savings, investment, or consumption.
• Encouragement for Formal Employment: The tax relaxation benefits salaried employees, encouraging more individuals to take up formal employment.
• Simplified Taxation: The reduction in tax rates and the increase in the rebate limit make tax filing simpler and more taxpayer friendly.
• Economic Growth: Increased disposable income leads to higher spending and investment, contributing to the country's economic growth.
Does This Mean Someone Earning Rs 15 Lakh Pays Tax Only on Rs 3 Lakh?
No, the tax rebate is only applicable for individuals earning up to Rs 12 lakh. If a person earns more than Rs 12 lakh, they will be taxed according to the new slabs, without the rebate. Therefore, an individual earning Rs 15 lakh will be taxed on the full amount based on the respective slab rates.

Marginal relief will save in cases where someone has marginal income above 12 lakh or 12.75 lakh as the case may be. For example, if someone has salary of 12.80 lakh, he will pay tax of Rs. 5000 only.

Comparison Between Old and New Tax Regimes
While the new tax regime now offers attractive benefits, some taxpayers might still prefer the old regime due to deductions available under Chapter VI-A (e.g., 80C, 80D). Individuals should evaluate their tax liability under both regimes before making a decision.
Key Considerations:

Those who benefit from deductions (such as HRA, 80C investments, and home loan interest) may find the old regime more suitable.
The new regime is beneficial for those who do not claim many deductions and seek a simplified taxation structure.
Switching between tax regimes is restricted for certain categories of taxpayers, so careful planning is required.

Government's Perspective and Revenue Implications
The government expects that this tax rebate will provide a major boost to consumer spending and investment. However, these tax cuts come at a cost:

An estimated revenue loss of Rs 1 lakh crore in direct taxes.
A loss of Rs 2,600 crore in indirect taxes.

Despite these losses, the government believes that the economic stimulus provided by increasing disposable income will lead to long-term benefits, including higher consumption and business growth.
Final Thoughts
The Union Budget 2025 has delivered a major win for middle-class taxpayers through the enhanced tax rebate under Section 87A. The revised tax slabs, combined with the increased rebate, ensure significant savings for individuals earning up to Rs 12 lakh. While those earning above this threshold will need to evaluate their tax liabilities carefully, the move reflects the government's focus on increasing disposable income and fostering economic growth.
For taxpayers, the key takeaway is to assess their income, deductions, and eligibility for the new rebate to make informed financial decisions. As always, tax planning remains an essential part of financial management, ensuring optimal savings and compliance with tax regulations.

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has brought significant relief to middle-class taxpayers by increasing the tax rebate under Section 87A. Under the new provisions, individuals with a net taxable income of up to Rs 12 lakh will now pay zero tax under the new income tax regime. This move is set to benefit a large segment of salaried and self-employed individuals, increasing their disposable income and promoting financial stability. In this article, we have tried to cover how up to 12 lakh income will have zero income tax liability.

Key Highlights of the New Tax Rebate

Resident individuals with net taxable income up to Rs 12 lakh will no longer have to pay income tax.
Salaried individuals availing the standard deduction benefit of Rs 75,000 under the new tax regime will enjoy a tax-free threshold of Rs 12.75 lakh.
The previous tax rebate limit under the new tax regime was Rs 7 lakh, which has now been significantly raised.
The finance minister has increased the rebate limit but not the basic exemption limit.
Individuals earning above Rs 12.75 lakh will be subject to tax under the revised slabs.
The rebate amount under clause (a) of the first proviso to Section 87A has been increased from Rs 25,000 to Rs 60,000.

Revised Tax Slabs for FY 2025-26

With the new tax rebate structure in place, the government has also revised the tax slabs. The updated tax rates under the new tax regime are as follows:

Income Slab (Rs)	Tax Rate
0 to 4 lakh	Nil
4 lakh to 8 lakh	5%
8 lakh to 12 lakh	10%
12 lakh to 16 lakh	15%
16 lakh to 20 lakh	20%
20 lakh to 24 lakh	25%
Above 24 lakh	30%

Detailed Explanation of the Tax Rebate

The increased rebate under Section 87A is applicable only to taxpayers earning up to Rs 12 lakh. The government has clarified that this rebate will not apply to special rate incomes such as capital gains, which continue to be taxed at different rates.

Impact of the Rebate

1. Normal Income vs. Special Income: The rebate applies to regular income such as salary, business profits, or other earnings classified under normal taxable income. However, income from capital gains and other special categories will continue to be taxed separately.

2. Complete Tax Exemption for Individuals Earning Rs 12 Lakh or Less: Individuals with an annual taxable income of Rs 12 lakh or lower will pay no tax, thanks to the enhanced rebate of Rs 60,000 from Rs. 25,000.

3. Threshold for Standard Deduction Benefit: Salaried taxpayers who claim the standard deduction benefit of Rs 75,000 will enjoy a tax-free threshold of Rs 12.75 lakh.

4. Taxation for Higher Incomes: If an individual's taxable income exceeds Rs 12 lakh, the tax liability will be calculated based on the new slabs without availing the rebate.

Examples of Tax Savings Under the New Regime

A taxpayer earning Rs 12 lakh will save Rs 80,000 in taxes, leading to 100% tax exemption.
An individual earning Rs 18 lakh will experience a tax reduction of Rs 70,000, approximately 30% of their previous tax liability.
For individuals earning Rs 25 lakh, the tax saving amounts to Rs 1.10 lakh, reducing their tax burden by 25%.

How This Affects Middle-Class Taxpayers?

The increased tax rebate under Section 87A is a significant step toward improving financial ease for middle-class individuals. The benefits include:

• More Disposable Income: Since individuals earning up to Rs 12 lakh will pay zero tax, they will have additional disposable income, which can be used for savings, investment, or consumption.

• Encouragement for Formal Employment: The tax relaxation benefits salaried employees, encouraging more individuals to take up formal employment.

• Simplified Taxation: The reduction in tax rates and the increase in the rebate limit make tax filing simpler and more taxpayer friendly.

• Economic Growth: Increased disposable income leads to higher spending and investment, contributing to the country's economic growth.

Does This Mean Someone Earning Rs 15 Lakh Pays Tax Only on Rs 3 Lakh?

No, the tax rebate is only applicable for individuals earning up to Rs 12 lakh. If a person earns more than Rs 12 lakh, they will be taxed according to the new slabs, without the rebate. Therefore, an individual earning Rs 15 lakh will be taxed on the full amount based on the respective slab rates.

Marginal relief will save in cases where someone has marginal income above 12 lakh or 12.75 lakh as the case may be. For example, if someone has salary of 12.80 lakh, he will pay tax of Rs. 5000 only.

Comparison Between Old and New Tax Regimes

While the new tax regime now offers attractive benefits, some taxpayers might still prefer the old regime due to deductions available under Chapter VI-A (e.g., 80C, 80D). Individuals should evaluate their tax liability under both regimes before making a decision.

Key Considerations:

Those who benefit from deductions (such as HRA, 80C investments, and home loan interest) may find the old regime more suitable.
The new regime is beneficial for those who do not claim many deductions and seek a simplified taxation structure.
Switching between tax regimes is restricted for certain categories of taxpayers, so careful planning is required.

Government's Perspective and Revenue Implications

The government expects that this tax rebate will provide a major boost to consumer spending and investment. However, these tax cuts come at a cost:

An estimated revenue loss of Rs 1 lakh crore in direct taxes.
A loss of Rs 2,600 crore in indirect taxes.

Despite these losses, the government believes that the economic stimulus provided by increasing disposable income will lead to long-term benefits, including higher consumption and business growth.

Final Thoughts

The Union Budget 2025 has delivered a major win for middle-class taxpayers through the enhanced tax rebate under Section 87A. The revised tax slabs, combined with the increased rebate, ensure significant savings for individuals earning up to Rs 12 lakh. While those earning above this threshold will need to evaluate their tax liabilities carefully, the move reflects the government's focus on increasing disposable income and fostering economic growth.

For taxpayers, the key takeaway is to assess their income, deductions, and eligibility for the new rebate to make informed financial decisions. As always, tax planning remains an essential part of financial management, ensuring optimal savings and compliance with tax regulations.