Section 87A of the Income-Tax Act, 1961 (‘the Act’) provides a rebate to resident individual taxpayers whose total taxable income does not exceed a specified threshold
Please answer this based on Finance Bill 2025, new tax regime.
A resident individual has a total income of ₹15 lakh for for FY26 — ₹12 lakh from rent/interest and ₹3 lakh from long-term capital gains (LTCG) on equity MF. I have assumed his tax calculation will be as follows:
* On LTCG of ₹3 lakh, tax liability is ₹3 lakh less ₹1.25 lakh exemption = ₹1.75 lakh at a special rate of 12.5 per cent.
* On income of ₹12 lakh, tax at slab rates = ₹60,000; if you deduct 87A rebate of ₹60,000, then tax liability on ₹12 lakh will be nil.
My assumption is that even if capital gains (taxed at special rates) push your total income above the threshold limit of ₹12 lakh, you will be eligible for 87A rebate on incomes taxable at normal slab rates.
A. Venkat
Section 87A of the Income-Tax Act, 1961 (‘the Act’) provides a rebate to resident individual taxpayers whose total taxable income does not exceed a specified threshold. As per the Finance Act, 2025, this threshold is ₹12 lakh under the new tax regime.
Key points to note
The maximum rebate available under this section is ₹60,000, subject to income limits. The rebate is applicable only to resident individuals.
It is computed on income taxable under the normal slab rates.
Where the total taxable income exceeds ₹12 lakh, the rebate under section 87A is not available.
However, where the total income slightly exceeds ₹12 lakh (due to income taxable at both normal rates and special rates, such as income under section 112A), marginal relief may be available under clause (b) of the first proviso to section 87A. This relief ensures that the additional tax payable does not exceed the income exceeding the threshold of ₹12 lakh.
In your case, since the total taxable income amounts to ₹15 lakh (comprising ₹12 lakh from rent/interest and ₹3 lakh as LTCG on equity mutual funds), the rebate under section 87A will not be applicable. Based on the computation, the total tax payable amounts to ₹81,875, plus applicable surcharge and cess.
The author is a practising chartered accountant
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Published on July 5, 2025
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