The income threshold for claiming a tax rebate under Section 87A for resident individuals taxable under the new regime of Section 115BAC has been proposed to be increased from Rs. 7 lakhs to Rs. 12 lakhs. 
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The income threshold for claiming a tax rebate under Section 87A for resident individuals taxable under the new regime of Section 115BAC has been proposed to be increased from Rs. 7 lakhs to Rs. 12 lakhs. In Budget 2025, Finance Minister Nirmala Sitharaman unveiled significant income tax savings, giving taxpayers more funds and introducing modifications to the way they compute their obligations. A noteworthy point is that individuals with earnings up to Rs 12 lakh are exempt from paying income tax in the updated taxation system.
During her speech, the Finance Minister announced that individuals earning up to Rs 12 lakh will be exempt from paying taxes. Taking into account the standard deduction of Rs 75,000, the effective tax-free threshold is raised to Rs 12.75 lakh.
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According to the Finance Bill, 2025, on the Central Board of Direct Taxes (CBDT) website, income taxed at special rates is not considered in the rebate calculation. This means that you are still eligible for a rebate even if your total income exceeds Rs 12.75 lakh due to capital gains.
As per the clauses in the personal taxation section in the Finance Bill, 2025:
> No changes have been proposed in the tax rates for assessees opting for the old tax regime.
> No changes have been proposed in rates of surcharge and education cess.
> The tax rates and slabs under the new tax regime of Section 115BAC have been proposed to be revised.
The new tax structure under the new regime shall be as follows:
Total Income Tax rate (Assessment Year 2026-27)
Up to Rs. 4 lakh Nil
From Rs 4-8 lakh 5%
From Rs 8-12 lakh 10%
From Rs 12-16 lakh 15%
From Rs 16-20 lakh 20%
From Rs 20-24 lakh 25%
Above Rs 24 lakh 30%
> The income threshold for claiming a tax rebate under Section 87A for resident individuals taxable under the new regime of Section 115BAC has been proposed to be increased from Rs. 7 lakhs to Rs. 12 lakhs, and the maximum rebate amount has been raised from Rs. 25,000 to Rs. 60,000.
> It is proposed that where resident individuals opt for the new tax regime of Section 115BAC, the incomes chargeable to tax at special rates (for example, capital gains taxable under Section 111A, Section 112, etc.) shall be excluded from calculating the Section 87A rebate.
When determining eligibility for the rebate, it is important to consider whether it applies solely to regular income or includes capital gains as well. For instance, if an individual earns Rs. 12 lakh from salary, they may still qualify for the rebate if it only applies to regular income. However, if capital gains are also factored in and their total income exceeds Rs. 12 lakh, they may be deemed ineligible for the rebate. The final decision will ultimately hinge on the specific wording outlined in the Finance Bill.
Similar uncertainties exist within the current tax regulations. Under Section 87A, individuals may be eligible for a tax rebate if their overall income, comprising both regular income and capital gains, is below Rs. 7 lakh. It is important to note that capital gains are treated as a separate entity for taxation purposes. Therefore, if capital gains elevate an individual's total income above Rs. 7 lakh, they may forfeit the rebate.
The total tax benefit of slab rate changes and rebate at different income levels can be illustrated in the table below:
No taxes till Rs 12.75 lakh taxable income
In FY25 (AY26), an individual below the age of 60 earning Rs 12.75 lakh had an estimated tax liability of Rs 83,200 (including cess). However, due to the recent Budget updates, there will now be no income tax on salary income up to Rs 12.75 lakh. This change will lead to savings of Rs 80,000 in tax and Rs 3,200 in cess.
Taxable income: Rs 12.1 lakh vs Rs 12.5 lakh vs Rs 12.75 lakh
The resident individuals earning between Rs 12 Lakh and Rs 12.75 Lakh are eligible for marginal relief. However, once their income exceeds Rs 12.75 Lakh, marginal relief will no longer be applicable, and they will be subject to the regular tax rates.
According to the CBDT explanation, for an income of Rs 12.1 lakh, the tax liability without marginal relief will be Rs 61,500.
It should be noted that income up to Rs 12 lakh is exempt from tax due to the proposed rebate of Rs 60,000.
To determine the marginal relief, we compare the tax liability with and without the rebate to the income amount exceeding the limit eligible for the rebate, which in this case is Rs 10,000 (Rs 12,10,000 - Rs 12,00,000).
According to the CBDT, the marginal relief in this scenario is Rs 51,500. This is calculated by subtracting the excess income over Rs 12 lakh (i.e. Rs 10,000) from the total tax liability, resulting in Rs 61,500 - Rs 10,000.
With the marginal relief of Rs 51,500, the total tax payable on an income of Rs 12.1 lakh will be reduced to Rs 10,000.
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