income tax
Published on 4 June 2025
Income Tax Comparison: Old vs. New Regime Benefits Explained
What’s the Story with Section 87A?
Section 87A has been kicking around since 2013, and unlike a lot of tax rules, this one actually does regular people a favor. The government noticed that folks with modest incomes were feeling the pinch, so they stepped in to offer some relief. Basically, if you’re living in India and your taxable income isn’t through the roof, Section 87A lets you trim down your tax bill a bit.
How the Rebate Has Shifted Over Time
Let’s not sugarcoat it: tax rules are always changing, and Section 87A is no exception. The rebate limits have bounced around, especially since the new tax regime showed up. Here’s how things stack up:
Income Tax Rebates Overview
| Year | Old Regime Rebate Limit | New Regime Rebate Limit |
|---|---|---|
| 2021-22 | ₹5,00,000 & ₹12,500 | – |
| 2022-23 | ₹5,00,000 & ₹12,500 | – |
| 2023-24 | ₹5,00,000 & ₹12,500 | ₹7,00,000 & ₹25,000 |
| 2024-25 | ₹5,00,000 & ₹12,500 | ₹7,00,000 & ₹25,000 |
| 2025-26 | ₹5,00,000 & ₹12,500 | ₹12,00,000 & ₹60,000 |
Who Gets the Rebate?
Here’s the short version:
- You need to be a resident individual. Sorry, NRIs and HUFs, this one’s not for you.
- Your net taxable income (after deductions) has to fall under that year’s limit.
- The rebate is figured before they tack on the 4% health and education cess.
- If you’re over 80, you’re out of luck—no rebate for “super senior citizens.”
How Do You Actually Claim It?
Let’s walk through it, step by step:
- Add up all your income—salary, business, capital gains, you name it.
- Subtract any deductions (like 80C, 80D) if you’re using the old regime.
- Check your net taxable income.
- Calculate your tax as per the slabs.
- If you qualify, knock off the rebate (up to the max, or your actual tax, whichever is less).
- Add the 4% cess to whatever’s left.
Picture this: Priya, a resident Indian, has a net taxable income of ₹11,80,000 in FY 2025-26 under the new regime. Her tax before cess is ₹59,000. She gets a rebate of ₹59,000, so her tax bill is zero. No cess, no stress.
Marginal Relief—The Safety Net
Ever feel like you’re being punished for earning a tiny bit more? That’s where marginal relief comes in. If your income just tips over the threshold and the extra tax you owe is more than what you earned above the limit, marginal relief steps in to keep things fair.
What Income Counts?
You can claim the rebate on your usual income that gets taxed according to the regular slabs—so things like your salary, business earnings, and even short-term capital gains from shares or mutual funds (that fall under Section 111A) are covered. Long-term capital gains under Section 112 also make the cut, except when it comes to profits from listed shares or equity mutual funds. For those specific gains under Section 112A, unfortunately, the rebate doesn’t apply.
The TDS Quirk
Here’s a little wrinkle: Employers usually don’t factor in this rebate when deducting TDS from your salary. Why? The law hasn’t caught up. So, you might see more TDS taken out than you really owe. Don’t worry—just claim the rebate when you file your return, and you’ll get the extra back as a refund. Some payroll software tries to be clever and include the rebate, but that’s not technically correct, so double-check your payslips.
Legal Updates and Software Surprises
In July 2024, the tax department updated its software to block the Section 87A rebate on certain special-rate incomes like STCG. But courts have since said that wasn’t the original intent, so STCG (except LTCG under 112A) should still get the rebate. If you claimed the rebate before this update, you might get a tax demand notice, so always check the latest rules and software.
Real-World Example
Let’s say Arjun earns ₹6,90,000 from salary and ₹10,000 as STCG in FY 2024-25. His net taxable income is ₹7,00,000. His tax before cess is ₹25,000, and he gets a ₹25,000 rebate. So, his tax bill? Zero. Simple as that.
Quick Tips
- The rebate is applied automatically when you file your ITR online.
- Always use the latest ITR and payroll software.
- If too much TDS was deducted, claim a refund in your return.
- Keep an eye out for updates from the CBDT.
Where to Check for Updates
- The Income Tax Department website is your best bet for official circulars and notifications.
- Check the latest Finance Acts and CBDT circulars for changes to Section 87A or TDS rules.
The Backstory and What’s Next
Section 87A has changed a lot, but its main goal has always been to help low and middle-income taxpayers. It’s a big deal for tax planning, especially if you’re close to the income threshold. There have been legal debates—especially around capital gains—and there’s still a mismatch between TDS rules and the rebate. Stay tuned for future tweaks, especially as automation and AI keep changing how we file taxes.