With Budget 2026 approaching, expectations are rising over whether the Narendra Modi government will announce significant tax relief for individual taxpayers. One key question is whether the income threshold eligible for full tax rebate under Section 87A will be increased from Rs 12 lakh to Rs 15 lakh.

Understanding Section 87A of the Income Tax Act

Section 87A provides a tax rebate that directly reduces a taxpayer’s final tax liability. Unlike deductions, this rebate is applied after tax calculation and can reduce the payable tax to zero if the individual qualifies. However, the rebate structure varies between the old and new tax regimes.

Old vs New Tax Regime: Key Differences

Under the old tax regime, the Section 87A rebate is capped at Rs 12,500 and is available only to taxpayers with total income below Rs 5 lakh. Even a marginal increase beyond this limit makes an individual ineligible for the rebate.

In contrast, the new tax regime offers a significantly higher benefit. At present, taxpayers earning up to Rs 12 lakh can claim a rebate of up to Rs 60,000, effectively resulting in zero tax liability. This has encouraged many salaried employees to move away from the old regime and opt for the simplified new system.

Rs 15 Lakh Rebate Hike: How Likely Is It?

• There is growing demand to raise the rebate eligibility limit to Rs 15 lakh, especially as household expenses continue to rise. However, tax experts suggest that such a move is unlikely in Budget 2026. The government has already incurred an estimated revenue loss of nearly Rs 1 lakh crore due to recent reforms in the new tax regime. Given the pressure on the fiscal balance, the focus is expected to remain on stabilizing the current structure rather than expanding benefits further.

Which Tax Regime Should You Choose for FY 2026–27?

• Taxpayers should carefully evaluate their financial situation before choosing between the two regimes. For individuals with limited savings or investments, the new tax regime is generally more beneficial due to the standard deduction of Rs 75,000 and the rebate applicable up to Rs 12 lakh.
• However, those investing in instruments such as PPF, LIC, home loans, or claiming HRA may find the old tax regime more advantageous, as these deductions can substantially reduce taxable income.

What Should Taxpayers Do Now?

• While a rebate hike to Rs 15 lakh would be welcome, taxpayers should avoid making financial decisions based on speculation. It is advisable to calculate tax liability under both regimes before filing returns and choose the option that results in the lowest tax outgo based on income, savings, and liabilities.