Section 87 A rebate limit changed: Know why there is no tax till ₹12 lakh income for FY 2025-26

For salaried employees in the new regime, the tax-free income limit will rise to ₹12.75 lakh from ₹7.75 lakh.

In the proposed slabs under the new regime for FY 2025-26, the basic exemption limit has been increased from ₹3 lakh to ₹4 lakh. Further, a tax rebate of ₹60,000 has been proposed for income between ₹4 lakh to ₹12 lakh.

Under the existing new tax regime (applicable for FY 2024-25), there is a rebate of ₹25,000 for income between ₹3 lakh to ₹7 lakh under section 87A.

As per the Budget Memorandum, individual resident taxpayers in India will be eligible for section 87A rebate of ₹60,000 under the new tax regime from assessment year 2026-27 (or FY 2025-26) onwards.

However, the enhanced rebate will not apply to tax on incomes chargeable at special rates, for example, capital gains under sections 111A and 112.

As you can see in the above table, the proposed tax rate for incomes between ₹4 lakh-₹8 lakh and ₹8 lakh to ₹12 lakh are 5% and 10% respectively.

Also, there is Nil tax on income up to ₹4 lakh. The tax liability at proposed rates for income between ₹4 lakh to ₹12 lakh is ₹60,000. However, due to the proposed rebate of ₹60,000 under section 87A, there will be no tax payable for income up to ₹12 lakh.