Tax Rebate Eligibility Under Section 87A in New Regime Explained

The new tax regime under Section 115BAC offers lower slab rates and a higher rebate limit compared to the old regime. Taxpayers with normal income up to ₹12 lakh can claim a rebate of ₹60,000 under Section 87A. However, income taxed at special rates, such as capital gains, is excluded from the rebate calculation. This distinction is crucial for investors earning from listed shares and equity mutual funds.

Understanding Section 115BAC and Its Features

Section 115BAC provides an optional tax regime for individuals, Hindu Undivided Families (HUFs), and associations of persons. It offers simplified slab rates but disallows common deductions like HRA, LTA, and those under Sections 80C, 80CCD, and 80G. Taxpayers opting for this regime must forgo most exemptions and deductions available under the old regime.

Section 87A Rebate Under New Tax Regime

Under the new regime, the rebate limit is ₹60,000 for resident individuals whose normal income does not exceed ₹12 lakh. This rebate applies only to tax on income taxed at slab rates. Income taxed at special rates, such as short-term and long-term capital gains, cannot be reduced using this rebate.

Treatment of Capital Gains

Short-term capital gains on listed shares and equity mutual funds are taxed at 20% under Section 111A. Long-term capital gains under Section 112A are exempt up to ₹1.25 lakh and taxed at 12.5% beyond that threshold. These gains are considered special-rate income and are excluded from rebate eligibility under Section 87A.

Practical Example

If an individual earns ₹12 lakh as normal income, ₹60,000 as short-term capital gains, and ₹1 lakh as long-term capital gains, they qualify for the Section 87A rebate on normal income. The long-term capital gain is fully exempt as it is below ₹1.25 lakh. Tax will apply only on the short-term capital gain at 20%, plus cess, amounting to approximately ₹12,480.

Read More: Income Tax Act 2025, Refund Rules.

Conclusion

The Section 87A rebate under the new tax regime significantly reduces tax liability for individuals with normal income up to ₹12 lakh. However, capital gains taxed at special rates remain outside its scope.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.