Section 87A Rebate: Rs 12 Lakh Limit & Rs 60,000 Tax Saving

How much is the rebate u/s 87A for AY 2026-27?

The rebate under Section 87A is up to Rs 60,000 under the new regime for total income up to Rs 12 lakh, and up to Rs 12,500 under the old regime for total income up to Rs 5 lakh. Only resident individuals qualify. Marginal relief applies just above the new regime threshold, up to about Rs 12,70,588.

The Section 87A rebate is the single reason why income up to Rs 12 lakh is tax-free under the new regime for FY 2025-26. It is not a deduction that lowers taxable income. It is a rebate that wipes out your computed tax after the slab calculation. This distinction matters because the rebate has a hard ceiling: cross the income threshold by even one rupee and the rebate disappears, unless marginal relief steps in to soften the cliff.

This guide covers how Section 87A works, the exact eligibility rules for both regimes, the marginal relief mechanism, the capital gains rules that trip up investors, and how the rebate flows into your ITR. Combined with the Rs. 75,000 standard deduction, Section 87A creates a powerful zero-tax benefit for salaried employees. For a full regime comparison, see old vs new tax regime: which is better. Want someone to apply it correctly when filing? Tax Garden's ITR filing service ensures your rebate is applied accurately.

What Is Rebate u/s 87A?

Rebate u/s 87A (under section 87A) of the Income Tax Act, 1961 allows a resident individual to claim a rebate against tax payable. The rebate reduces the tax liability directly, unlike a deduction under Chapter VI-A (like 80C or 80D) which reduces taxable income.

The sequence is:

1. Compute total income after all deductions.
2. Calculate tax on that income using the applicable slab rates.
3. Apply the rebate under sec 87A to reduce the computed tax.
4. Add 4% health and education cess on the remaining tax (after rebate).
5. The final amount is your tax payable.

If the computed tax is less than or equal to the maximum rebate, the entire tax is wiped out and you pay zero (plus zero cess, since 4% of zero is zero).

Section 87A Rebate Limits: New Regime vs Old Regime

How the Rs. 60,000 rebate is calculated:

Tax on Rs. 12,00,000 under new regime = Rs. 60,000 (calculated using new slabs)

Section 87A rebate = Rs. 60,000 (exact amount)

Therefore, if your taxable income ≤ Rs. 12 lakh, the entire tax is wiped out.

These limits are new for FY 2025-26. For FY 2024-25 (AY 2025-26), the new regime rebate was only Rs 25,000 for income up to Rs 7 lakh, so do not apply the Rs 12 lakh limit to an older year's return. The old regime rebate of Rs 12,500 up to Rs 5 lakh is unchanged.

Example: Taxable income of Rs. 10,00,000 → Computed tax = Rs. 50,000 → Section 87A rebate of Rs. 60,000 applied → Tax payable = Zero (rebate is capped at computed tax) → No cess (4% of zero)

Tax Savings With Section 87A (New Regime)

*Taxable income is above Rs. 12 lakh and beyond the marginal relief range (about Rs. 12,70,588), so no rebate applies. Tax figures are before 4% cess. New regime slabs: 0-4L nil, 4-8L 5%, 8-12L 10%, 12-16L 15%, 16-20L 20%, 20-24L 25%, above 24L 30%.

Section 87A Rebate Calculator: Quick Estimate

Use this framework to estimate your rebate, or enter your figures in the old vs new tax regime calculator, which applies the rebate and marginal relief under both regimes:

New Regime (FY 2025-26, AY 2026-27):

1. Take your gross salary plus all other income, including capital gains (they count towards the Rs 12 lakh test)
2. Deduct Rs 75,000 standard deduction (salaried only) = Taxable income
3. If taxable income ≤ Rs 12,00,000 → Rebate wipes entire tax to zero
4. If taxable income > Rs 12,00,000 → No rebate. Marginal relief caps the tax at the excess over Rs 12 lakh, but only up to a total income of about Rs 12,70,588. Above that, normal slab tax applies

Example: Gross salary Rs 11,00,000 → Minus Rs 75,000 SD → Taxable Rs 10,25,000 → Tax @ slabs = Rs 42,500 → Rebate of Rs 60,000 applied → Final tax = Zero

Old Regime (FY 2025-26, AY 2026-27):

1. Take taxable income (after the Rs 50,000 standard deduction for salaried taxpayers and all Chapter VI-A deductions)
2. If taxable income ≤ Rs 5,00,000 → Rebate = tax payable, up to Rs 12,500, so tax becomes zero
3. If taxable income > Rs 5,00,000 → Rebate does not apply

For precise calculation based on your income, deductions, and capital gains, use Tax Garden's ITR filing service to verify eligibility and maximize your rebate before filing. Our compliance team handles Section 87A verification and ITR filing across all income levels.

Who Can Claim the Rebate?

Eligible:

• Resident individuals (including senior citizens and super senior citizens)
• Both salaried and non-salaried individuals
• Individuals with business or professional income, provided total income is within the threshold
• Self-employed professionals filing income tax returns

Not eligible:

• Non-residents (NRIs), as decided by the residential status rules for NRIs. A Resident but Not Ordinarily Resident (RNOR) individual is still resident in India and can claim the rebate.
• Hindu Undivided Families (HUFs)
• Partnership firms, LLPs, and companies
• Individuals whose taxable income exceeds the threshold (Rs 12 lakh under new regime, Rs 5 lakh under old regime)

The Rs 12,75,000 Zero-Tax Salary Under the New Regime

For salaried employees, the standard deduction of Rs 75,000 under the new regime reduces gross salary before arriving at taxable income. This means:

Gross salary of Rs 12,75,000 Minus standard deduction: Rs 75,000 = Taxable income: Rs 12,00,000 Tax on Rs 12,00,000: Rs 60,000 Section 87A rebate: Rs 60,000 Net tax: Rs 0

If you are salaried and your gross salary (before any other income) is Rs 12,75,000 or less, and you have no other income sources, your income tax liability is zero under the new regime.

Where the "Rs 7 Lakh" Limit Comes From

Many people still search for "7 lakh income tax-free". Rs 7 lakh was the new regime rebate limit for AY 2024-25 and AY 2025-26 (rebate up to Rs 25,000). From AY 2026-27 the limit is Rs 12 lakh, so Rs 7 lakh is no longer a threshold: income of Rs 7 lakh is simply well inside the Rs 12 lakh limit. Use Rs 7 lakh only for a belated, revised or updated return of those earlier years. For AY 2026-27:

Salaried employee with gross salary Rs 7,00,000:

• Standard deduction: Rs 75,000
• Taxable income: Rs 6,25,000
• Tax at new regime slabs (0-4L nil, 4-8L at 5%): Rs 4L × 0% + Rs 2.25L × 5% = Rs 11,250
• Section 87A rebate: Rs 60,000 (applicable since taxable income ≤ Rs 12L)
• Tax after rebate: Zero (rebate wipes out tax of Rs 11,250)
• 4% Cess: Zero

Result: A Rs 7,00,000 salary pays zero tax under the new regime for AY 2026-27, and so does any salary up to Rs 12,75,000 with no other income. The rebate offsets tax on normal-rate income (salary, business, rental, etc.) as long as total income does not exceed Rs 12 lakh, but not tax on special-rate income such as STCG under Section 111A or LTCG under Section 112A (see the capital gains section below).

Marginal Relief: What Happens If Income Slightly Exceeds Rs 12 Lakh?

The rebate threshold creates a cliff. At Rs 12,00,000 you pay zero tax. At Rs 12,00,001 you lose the entire Rs 60,000 rebate. Without any safeguard, someone earning Rs 12,10,000 would pay Rs 61,500 in tax (on the full Rs 12.1 lakh), which is absurd because the extra Rs 10,000 of income triggers Rs 61,500 of tax.

Marginal relief fixes this. The rule: your total tax cannot exceed the amount by which your income exceeds Rs 12,00,000.

Worked Example: Income of Rs 12,10,000

Step 1: Compute tax at slab rates (new regime)

Step 2: Compute excess income above threshold Rs 12,10,000 minus Rs 12,00,000 = Rs 10,000

Step 3: Apply marginal relief Tax of Rs 61,500 exceeds excess income of Rs 10,000. Marginal relief applies. Tax is limited to Rs 10,000.

Step 4: Add cess 4% of Rs 10,000 = Rs 400. Total tax payable = Rs 10,400.

Without marginal relief, you would pay Rs 61,500 + Rs 2,460 cess = Rs 63,960. With marginal relief, you pay Rs 10,400. That is a saving of Rs 53,560.

Worked Example: Income of Rs 13,00,000

Step 1: Compute tax at slab rates

Step 2: Compute excess income Rs 13,00,000 minus Rs 12,00,000 = Rs 1,00,000

Step 3: Check marginal relief Tax of Rs 75,000 is less than excess income of Rs 1,00,000. No marginal relief needed. Regular tax applies.

Step 4: Add cess 4% of Rs 75,000 = Rs 3,000. Total tax payable = Rs 78,000.

The crossover point, where regular tax equals the excess income and marginal relief stops helping, is a total income of about Rs 12,70,588. At that level, slab tax (Rs 60,000 plus 15% of Rs 70,588) equals the Rs 70,588 excess over Rs 12 lakh.

Marginal Relief at a Glance (New Regime, AY 2026-27)

Relief applies only where slab tax is higher than the excess, which is up to about Rs 12,70,588. For salaried taxpayers, add Rs 75,000 standard deduction to read these as gross salary (Rs 12,10,000 total income is a Rs 12,85,000 salary).

Capital Gains and the Section 87A Trap

This is where most ITR mistakes happen. The rebate rules treat capital gains differently under the two regimes.

New Regime: Capital Gains Count, But the Rebate Cannot Touch Their Tax

Under the new regime for FY 2025-26, the Finance Act 2025 works in two steps:

1. For eligibility: Total income for the Rs 12 lakh threshold check includes special rate income such as STCG under Section 111A (20%) and LTCG under Section 112A (12.5%) on listed shares.
2. For rebate application (new regime only): Even if you are eligible, the new regime rebate cannot reduce the tax on special rate income. It only offsets tax on income taxed at the Section 115BAC(1A) slab rates. The Finance Act 2025 inserted a second proviso to Section 87A (effective 1 April 2026) stating that the new regime rebate "shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115BAC", and the Finance Bill 2025 memorandum confirms that the rebate "is not available on tax on incomes chargeable at special rates (for e.g.: capital gains u/s 111A, 112 etc.)". This rule does not apply to the old regime (see below). If CPC has already raised a demand on this, see 87A rebate denied on STCG: fixing the 143(1) demand.

Example 1 (eligible): You have Rs 10,00,000 of taxable salary income and Rs 1,50,000 of LTCG from equity mutual funds.

• Total income for threshold check: Rs 11,50,000 (LTCG included). This is within Rs 12 lakh, so you are eligible.
• Tax on salary income (Rs 10L): Rs 20,000 (4-8L) + Rs 20,000 (8-10L) = Rs 40,000. Rebate wipes this to zero.
• Tax on LTCG: Rs 1,50,000 minus Rs 1,25,000 exemption = Rs 25,000 taxable at 12.5% = Rs 3,125. This is payable. The rebate does not touch it.
• Cess: 4% of Rs 3,125 = Rs 125.
• Total tax: Rs 3,250.

Example 2 (not eligible): The same salary with Rs 3,00,000 of LTCG gives total income of Rs 13,00,000, which is above Rs 12 lakh and beyond the marginal relief range. No rebate applies: Rs 40,000 slab tax plus Rs 21,875 LTCG tax (12.5% of Rs 1,75,000) = Rs 61,875, plus Rs 2,475 cess = Rs 64,350.

Lottery winnings and crypto follow the same rule. Winnings from lotteries, crossword puzzles, races, card games, gambling and betting are taxed at 30% under Section 115BB, and gains on crypto and other virtual digital assets at 30% under Section 115BBH. Both count towards the Rs 12 lakh limit, but the rebate cannot reduce the 30% tax, because the Finance Act 2025 proviso caps the rebate at the tax computed at the Section 115BAC(1A) slab rates.

Example 3 (lottery winnings): Taxable salary of Rs 9,00,000 (after the standard deduction) and Rs 1,00,000 won in a lottery.

• Total income for threshold check: Rs 10,00,000. Within Rs 12 lakh, so you are eligible.
• Slab tax on salary: Rs 20,000 (4-8L) + Rs 10,000 (8-9L) = Rs 30,000. Rebate wipes this to zero.
• Tax on winnings: 30% of Rs 1,00,000 = Rs 30,000, plus 4% cess of Rs 1,200 = Rs 31,200. This is payable; the payer usually deducts the 30% as TDS before paying you.

Earlier Years: Before the Finance Act 2025 Proviso

For AY 2024-25 and AY 2025-26, Section 87A had only the first proviso for the new regime; the second proviso capping the rebate at slab-rate tax applies from 1 April 2026, that is, from AY 2026-27. If CPC has raised a 143(1) demand for an earlier year on this issue, see 87A rebate denied on STCG: fixing the 143(1) demand. For AY 2026-27 returns, the amended Section 87A applies as described above.

Old Regime: Capital Gains Are Included in the Threshold

Under the old regime, total income for the Rs 5 lakh threshold includes special rate income. If your salary is Rs 4,50,000 and you have Rs 60,000 of STCG, your total income is Rs 5,10,000. This exceeds Rs 5 lakh, so the rebate is not available at all.

If your total income is within Rs 5 lakh (including capital gains), the old regime rebate can offset tax on STCG under Section 111A, but not tax on LTCG under Section 112A. The main provision of Section 87A allows the rebate against "income-tax ... on his total income", and Section 111A contains no restriction on it. Section 112A(6) is the only carve-out: where total income includes LTCG under Section 112A, "the rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains". This differs from the new regime, where the Finance Act 2025 proviso limits the rebate to tax at the slab rates, so it cannot touch tax on any special rate income.

How to Claim Section 87A Rebate in Your ITR

Not sure if the rebate applies to your income? Tax Garden can verify your eligibility before you file. Our team reviews your income, rebate eligibility and deductions before we file your ITR.

The rebate is not something you claim separately. The income tax e-filing portal at incometax.gov.in/iec/foportal/ applies it automatically based on the income you report in your ITR.

Here is what happens during filing:

1. You fill in all income details (salary, house property, business, capital gains, other sources).
2. The ITR utility computes total income after deductions.
3. If total income is within the threshold, the portal applies the rebate in the tax computation sheet.
4. The rebate appears in the ITR form under "Rebate under Section 87A" in the tax computation section.
5. You verify the amount and submit.

There is no separate form to fill. However, you should verify that the portal has applied the rebate correctly. Common errors:

• Wrong regime selection: If you accidentally file under the old regime and your income is between Rs 5 lakh and Rs 12 lakh, you lose the rebate. Under the new regime, you would have got it.
• Capital gains not segregated: If capital gains are entered incorrectly, the threshold check may fail.
• Income from other sources missing: Interest income, rental income, or other sources that push total income above the threshold will disqualify the rebate.

Section 87A Under the New Income Tax Act, 2025

Want to understand the full ITR filing process? Tax Garden handles ITR end-to-end with Section 87A verification built-in.

The Income-tax Act, 2025 applies from 1 April 2026 and replaces assessment years with a single "Tax Year". It carries the rebate over as Section 156, and the new regime itself moves from Section 115BAC to Section 202. The limits are the same, so the rebate for income earned in FY 2026-27 (Tax Year 2026-27) works exactly as described on this page. For AY 2026-27 (FY 2025-26), Section 87A of the Income Tax Act, 1961 applies.

For the slabs that apply to the current year, see income tax slab rates for FY 2026-27.

Section 87A Rebate Limits Year by Year

Use the limit for the year of the return you are filing, especially for a belated, revised or updated return.

Quick Reference: Section 87A Eligibility Checklist

Before you file, run through this:

• Are you a resident individual? Non-residents cannot claim the rebate; RNOR individuals, being resident, can.
• Which regime are you filing under? New regime: Rs 12 lakh threshold, Rs 60,000 rebate. Old regime: Rs 5 lakh threshold, Rs 12,500 rebate.
• What is your total income after deductions? Include STCG (Section 111A) and LTCG (Section 112A) in this figure under both regimes.
• Is it within the threshold? If yes, the rebate applies to tax on normal income only.
• Do you have capital gains? Under the new regime the rebate will not reduce tax on STCG (111A) or LTCG (112A). Under the old regime it can cover STCG tax but never LTCG tax under 112A.
• Have you checked the ITR computation? Verify the portal applied the rebate in the tax calculation section before submitting.

Unsure about your eligibility? Tax Garden's ITR filing service includes Section 87A verification and ensures correct rebate application. View all compliance services and pricing.

Section 87A Rebate: Old Regime Worked Example

Profile: Resident individual, gross income Rs 7,50,000, deductions: Rs 1,50,000 (Section 80C) + Rs 25,000 (Section 80D) + Rs 50,000 (standard deduction).

Gross income: Rs 7,50,000 Standard deduction: Rs 50,000 Net salary: Rs 7,00,000 Less 80C: Rs 1,50,000 Less 80D: Rs 25,000 Taxable income: Rs 5,25,000

Since taxable income exceeds Rs 5,00,000, the rebate is not available under the old regime.

Tax:

• 0 to 2.5L: Nil
• 2.5L to 5L: 5% = Rs 12,500
• 5L to 5.25L: 20% = Rs 5,000
• Total tax: Rs 17,500
• Cess: Rs 700
• Tax payable: Rs 18,200

If the same person had Rs 25,000 more in deductions (total deductions Rs 2,50,000), taxable income drops to Rs 5,00,000. Rebate of Rs 12,500 kicks in, tax becomes zero. This shows how sensitive the old regime rebate is to Rs 5 lakh boundary.

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This guide is based on Section 87A of the Income Tax Act, 1961 as amended by the Finance Act, 2025, Section 156 of the Income-tax Act, 2025, and the slab rates and rebate limits published for AY 2026-27 on the Income Tax Department portal (incometax.gov.in). Limits were last checked against the portal on 6 October 2026. Tax laws can change through Finance Acts or CBDT notifications. Consult a qualified tax professional for advice specific to your situation.

Frequently Asked Questions

Who is eligible for rebate u/s 87A in AY 2026-27?

Resident individuals (including salaried employees, business owners, professionals, senior citizens) are eligible if total income is within Rs. 12 lakh (new regime) or Rs. 5 lakh (old regime). NRIs, HUFs, firms, and companies are not eligible.

What is the difference between the Section 87A rebate and an 80C deduction?

An 80C deduction reduces your taxable income (input to slab calculation). The 87A rebate reduces tax after slabs are applied. If your taxable income after 80C deductions is within threshold (Rs. 12 lakh new regime, Rs. 5 lakh old regime), the rebate wipes out the resulting tax.

How does marginal relief work if my income is just above Rs 12 lakh?

Under the new regime, marginal relief caps your tax at the amount by which total income exceeds Rs 12 lakh. At Rs 12,10,000, slab tax is Rs 61,500, but you pay only Rs 10,000 plus cess. The relief stops helping at about Rs 12,70,588, where normal slab tax becomes lower than the excess income. The old regime has no marginal relief at Rs 5 lakh.

How do capital gains affect Section 87A eligibility?

Capital gains count towards total income for the threshold check in both regimes (Rs. 12 lakh new, Rs. 5 lakh old), so large gains can push you over the limit. Even when you qualify, the new regime rebate cannot reduce tax on special-rate income such as STCG under Section 111A or LTCG under Section 112A. Under the old regime it can offset tax on STCG under Section 111A, but never on LTCG under Section 112A.

Was the Section 87A rebate the same in FY 2024-25 (AY 2025-26)?

No. For FY 2024-25 the new regime rebate was Rs. 25,000 for income up to Rs. 7 lakh. The Finance Act 2025 raised it to Rs. 60,000 for income up to Rs. 12 lakh from FY 2025-26 (AY 2026-27). The old regime rebate stayed at Rs. 12,500 for income up to Rs. 5 lakh.

Does the employer consider Section 87A while deducting TDS from salary?

Yes. When computing TDS on salary under Section 192, the employer considers the rebate under Section 87A. If the employee's estimated total income is within the threshold, the employer will not deduct TDS. This is why many salaried employees with income up to Rs 12.75 lakh see zero TDS on their salary slips under the new regime.

What if I forget to claim the rebate?

You do not claim the rebate separately: the ITR utility computes it from the income and regime you report, and CPC recomputes it when processing the return. Mistakes usually come from choosing the old regime by accident, leaving out interest or other income, or entering capital gains under the wrong head, so check the rebate line in the tax computation before you submit.

Is Section 87A available under the new Income Tax Act 2025?

Yes. The Income-tax Act, 2025 applies from 1 April 2026 and carries the rebate over as Section 156, with the same limits: up to Rs 60,000 for total income up to Rs 12 lakh under the new regime (Section 202) and up to Rs 12,500 for total income up to Rs 5 lakh under the old regime. It applies from Tax Year 2026-27. For AY 2026-27 (FY 2025-26), Section 87A of the 1961 Act applies.