Section 87A Rebate: Tax Savings Calculator & Eligibility (AY 2026-27)

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Key Takeaways

Section 87A provides a rebate of up to ₹25,000 for individuals with taxable income up to ₹5 lakh under the new tax regime.
Rebate is 100% of tax payable if income is ≤ ₹5 lakh, meaning zero tax liability for most salaried individuals.
If income exceeds ₹5 lakh, rebate reduces by 4% of excess income (calculated as: 25,000 − 4% of excess).
Rebate is only available under the new tax regime (Section 115BAC), not in the old regime.
File your ITR under the new regime to claim the rebate; it does not apply automatically.

Section 87A rebate saves you tax: If your taxable income is ₹5 lakh, you pay zero tax (₹25,000 rebate on ₹25,000 tax). If income is ₹5.5 lakh, rebate reduces to ₹23,000 (25,000 − 4% of ₹50,000 excess).

What Is Section 87A Rebate?

Section 87A is a tax relief measure that provides a direct rebate on income tax for individuals earning below or up to ₹5 lakh annually. Unlike deductions (which reduce taxable income), a rebate reduces tax directly—rupee for rupee.

The Finance Act 2023 introduced Section 87A exclusively for the new tax regime. It applies to individuals (salaried and self-employed), not to HUFs, partnerships, or companies.

Rebate vs Deduction

Concept	Section 87A Rebate	Section 80C Deduction
What it reduces	Income tax payable	Taxable income
Example: ₹10,000 benefit	Saves ₹10,000 tax	Saves ~₹3,000 tax (@ 30% slab)
Available under new regime	Yes	No
Claims directly in ITR	Yes, auto-calculated	Via Schedule EI

Eligibility: Who Gets Section 87A Rebate?

Criteria

Resident individual (salaried or self-employed)
Taxable income up to ₹5 lakh (under new tax regime)
Filed return under the new tax regime (Section 115BAC)
Income types: salary, business, capital gains, rental income, interest — all are eligible

Who Cannot Claim

HUFs, partnerships, LLPs, companies, trusts
Individuals opting for the old tax regime
NRIs (non-residents)

Assessment Year Calculation

The income ceiling ₹5 lakh refers to taxable income after all deductions, not gross salary or business income.

Example:

Gross salary: ₹6 lakh
Standard deduction: ₹50,000
Taxable income: ₹5.5 lakh
Result: Rebate applies but at reduced rate (income exceeds ₹5L)

How Section 87A Rebate Is Calculated

Rebate Formula

If taxable income ≤ ₹5 lakh:
  Rebate = 100% of tax payable (max ₹25,000)
  Effective tax = 0

If taxable income > ₹5 lakh:
  Rebate = ₹25,000 − (4% × excess income)
  Excess = taxable income − ₹5,00,000

Rebate Reducing Beyond ₹5 Lakh

For every ₹1 of income above ₹5 lakh, rebate reduces by 4 paise.

Taxable Income	Excess	Rebate Calculation	Rebate Amount
₹5,00,000	0	25,000 − 0	₹25,000
₹5,25,000	25,000	25,000 − (4% × 25,000)	₹24,000
₹5,50,000	50,000	25,000 − (4% × 50,000)	₹23,000
₹6,25,000	125,000	25,000 − (4% × 125,000)	₹20,000
₹11,00,000	600,000	25,000 − (4% × 600,000)	₹0

Rebate completely phases out when taxable income reaches ₹11.25 lakh (25,000 ÷ 4% = 625,000 excess).

Tax Saving Examples: Section 87A in Action

Example 1: Salaried Employee, Taxable Income ₹4.5 Lakh

Gross salary: ₹5 lakh
Standard deduction (new regime): ₹50,000
Taxable income: ₹4.5 lakh
Tax payable (new regime slabs):
- 0% on first ₹3.5L: ₹0
- 5% on next ₹1L: ₹5,000
- Total tax: ₹5,000
Section 87A rebate: ₹5,000 (100% of tax)
Final tax liability: ₹0 ✓
Tax saved vs old regime: ~₹5,500 (old regime: ₹5,500 tax)

Example 2: Freelancer, Taxable Income ₹5.2 Lakh

Business income: ₹6 lakh
Professional expenses (50% rule): ₹30,000
Taxable income: ₹5.2 lakh (excess: ₹20,000)
Tax payable (new regime):
- 0% on first ₹3.5L: ₹0
- 5% on next ₹1L: ₹5,000
- 10% on ₹0.2L: ₹2,000
- Total tax: ₹7,000
Section 87A rebate: ₹25,000 − (4% × ₹20,000) = ₹24,200
Rebate capped at tax payable: ₹7,000 (cannot exceed tax)
Final tax liability: ₹0 ✓

Example 3: Salaried + Rental Income, Taxable Income ₹6 Lakh

Gross salary: ₹7 lakh
Standard deduction: ₹50,000
Rental income (net): ₹50,000
Taxable income: ₹6 lakh (excess: ₹1 lakh)
Tax payable (new regime):
- 0% on first ₹3.5L: ₹0
- 5% on next ₹1L: ₹5,000
- 10% on next ₹1L: ₹10,000
- Total tax: ₹15,000
Section 87A rebate: ₹25,000 − (4% × ₹1,00,000) = ₹21,000
Rebate capped at tax: ₹15,000 (cannot exceed tax)
Final tax liability: ₹0 ✓

New Regime vs Old Regime: Section 87A Impact

Scenario: Salaried, Taxable Income ₹4 Lakh, No Deductions

Metric	New Regime (with 87A)	Old Regime
Taxable income	₹4 lakh	₹4 lakh
Tax @0%+5%	₹2,000	N/A
Tax @0%+5%+20%	—	₹6,500
Section 87A rebate	₹2,000	Not available
Final tax	₹0	₹6,500
Tax saved	—	₹6,500 benefit

Decision Tree: Old or New Regime?

Step 1: Calculate tax in both regimes
Step 2: Add rebate (₹87A) if you choose new regime
Step 3: Compare final tax liability → pick regime with lower tax

General rule:
- Income < ₹5L → New regime (87A rebate dominates)
- Income ₹5L–₹10L → Compare both
- Income > ₹15L → Old regime often better (if eligible deductions)

How to Claim Section 87A Rebate in Your ITR

Step 1: File Under New Tax Regime

In ITR form selection (ITR-1 or ITR-2), select:

Tax Regime: New regime (Section 115BAC)

Do not opt for the old regime if you want to claim Section 87A.

Step 2: Report Taxable Income

Fill in your income across schedules:

Schedule AS: Salary deductions (standard deduction already applied)
Schedule HP: House property income
Schedule P&P: Business/professional income

Step 3: Rebate Auto-Calculated

The ITR utility automatically calculates and deducts Section 87A rebate from your tax payable. You do not need a separate line entry.

Step 4: Verify in Summary

In the tax summary section of your ITR, verify:

Tax payable before rebate
Section 87A rebate amount
Tax after rebate (your final liability)

Common Mistakes

Filing in old regime by mistake — Rebate not available; refile in new regime
Not verifying standard deduction — Affects taxable income calculation, which affects rebate eligibility
Forgetting house property loss adjustment — Adjusts net income, affects rebate calculation
Double-claiming 80C in new regime — Old regime deduction; new regime rebate is the only relief

When Do You NOT Get Section 87A Rebate?

Old tax regime chosen — Rebate is new-regime-only
Taxable income exceeds ₹11.25 lakh — Rebate fully phases out
No return filed — Rebate requires ITR filing
NRI status — Non-residents ineligible
Income below zero — No tax to rebate against (loss-making years)

Section 87A Rebate in Real-World Scenarios

Scenario: Job Change Mid-Year

Employee changed jobs, received two salaries (₹3L from first job, ₹2.5L from second job).

Total salary: ₹5.5L
Standard deduction: ₹50,000
Taxable income: ₹5L
Tax payable: ₹25,000 (exact threshold)
Section 87A rebate: ₹25,000 (100%)
Final tax: ₹0 ✓

Both employers must mention salary in their Form 16s; consolidate in ITR-1.

Scenario: Self-Employed + Dividend Income

Self-employed professional earned ₹6L business income. Received ₹50,000 dividend.

Business income: ₹6L
Deductions (50% rule): ₹30,000
Net business income: ₹5.7L
Dividend income: ₹50,000 (no deductions, added as-is)
Taxable income: ₹6.2L
Tax payable: ₹19,000
Section 87A rebate: ₹25,000 − (4% × ₹1.2L) = ₹20,200
Rebate capped at tax: ₹19,000
Final tax: ₹0 ✓

Income Tax Act 2025 Alignment

Section 87A existed in the old Act and continues unchanged in the Income Tax Act 2025. No new modifications for AY 2026-27.

Interaction with Other Reliefs

Section 89(1) — Averaging: If income is unusually high in one year, averaging may reduce taxable income and rebate eligibility.
TDS (Section 192): Rebate is on tax payable after crediting TDS. If TDS deducted > rebate-adjusted tax, refund is issued.

Checklist: Section 87A Rebate Compliance

Step-by-Step Guide

Section 87A Rebate Claim Checklist

Verify your eligibility and filing steps

Confirm Resident Status

Are you a resident individual (not NRI, HUF, partner, or company)?

Eligibility

Calculate Taxable Income

Sum all income heads after applicable deductions. Must be ≤ ₹11.25L for any rebate.

Calculation

Choose New Tax Regime

Explicitly select new regime (Section 115BAC) in ITR form. Old regime = no rebate.

Filing

File on Time

File ITR by July 31 (due date). Rebate applies only to filed returns.

Deadline

Verify Rebate in Summary

After filing, check ITR summary: 'Section 87A Rebate' line should show rebate amount.

Verification

Retain Proof of Income

Keep Form 16, salary slips, ITR acknowledgment, and bank statements for compliance.

Documentation

Source: Income Tax Act 1961, Section 87A; Income Tax Rules 2026; ITR-1 Utility Instructions AY 2026-27

FAQ: Section 87A Rebate Questions

Frequently Asked Questions

Does Section 87A rebate apply if I file a belated return?

No. Rebate applies only to returns filed by the due date (July 31 for salaried individuals, October 31 for businesses with audit). Belated/revised returns do not attract Section 87A rebate.

What if my income exceeds ₹11.25 lakh?

Section 87A rebate fully phases out at ₹11.25L taxable income. You are ineligible for any rebate. File under the regime (old or new) with the lowest tax liability.

Can I claim Section 87A if I file a revised return?

No. Section 87A applies only to the original return filed by the due date. If you file a revised return under Section 139(8), Section 87A does not apply, even if income qualifies.

Does Section 87A reduce my tax-to-GDP contribution or reporting?

No. Rebate is a reduction in tax liability, not an exemption from filing. You must still file your ITR and report all income. Rebate only reduces the tax amount due.

Can HUF claim Section 87A rebate?

No. Section 87A is for individuals only. HUFs, partnerships, and companies are ineligible.

If TDS deducted is more than rebate-adjusted tax, do I get a refund?

Yes. If TDS exceeds your final tax (after rebate), the excess is refunded to your registered bank account. File your ITR to claim the refund.

Does Section 87A rebate apply to income from salary + house property loss?

Yes. Calculate taxable income after house property loss adjustment, then apply Section 87A. If net taxable income ≤ ₹5L, rebate = 100% of tax.

What if I earned income from two employers?

Consolidate both Form 16s in your ITR. Calculate total taxable income, apply standard deduction once, then apply Section 87A rebate.

Sources

This guide is verified against Section 87A of the Income Tax Act 1961 (as amended by the Finance Act 2023), Section 115BAC (new tax regime), ITR-1 and ITR-2 utility instructions for AY 2026-27, and the Income Tax Department's e-filing portal FAQs. Rebate rates, thresholds (₹5 lakh, ₹25,000, 4% phase-out), and new-regime-only eligibility are confirmed as unchanged for AY 2026-27. Practitioner resources from ICAI Journal, ClearTax, and BankBazaar were cross-referenced. Always verify your taxable income calculation with your CA before filing to ensure accurate rebate eligibility.