Section 156 of the Income-tax Act, 2025 allows a resident individual a rebate of 100% of income-tax or ₹12,500, whichever is less, where total income does not exceed ₹5,00,000. Under section 202(1) the rebate is 100% or ₹60,000, whichever is less, where income does not exceed ₹12,00,000.
What section 156 does
Section 156 is the successor to section 87A — the provision that decides whether a large number of Indian taxpayers pay anything at all. It applies to an individual resident in India.
There are two separate rebates, and which one applies depends on the regime. Sub-section (1) gives 100% of income-tax payable or ₹12,500, whichever is less, where total income does not exceed ₹5,00,000. Sub-section (2) applies where income is chargeable under section 202(1) and gives 100% or ₹60,000, whichever is less, where the income does not exceed ₹12,00,000.
The rebate is computed on income-tax before allowing the deduction under this section, and it reduces tax — it is not a deduction from income. That distinction matters: a rebate can take your tax to nil but never below it.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 87A | Rebate for resident individuals | 156 |
| 87A, first proviso | ₹12,500 rebate where income within ₹5,00,000 | 156(1) |
| 87A, second proviso | Enhanced rebate under the new regime | 156(2) |
| 87 | General rebate provision | 155 |
| 115BAC | New regime | 202 |
Section 156 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — the ₹12,500 rebate
An individual resident in India is entitled to a deduction from income-tax of 100% of the income-tax payable or ₹12,500, whichever is less, computed before allowing the deduction under this section, if the total income does not exceed ₹5,00,000. This is the limb that applies where income is not chargeable under section 202(1).
Sub-section (2) — the ₹60,000 rebate under the new regime
Where the total income of a resident individual is chargeable to tax under section 202(1), the rebate is: (a) where income does not exceed ₹12,00,000, 100% of the income-tax payable or ₹60,000, whichever is less. Read with the section 202 slab table, tax on exactly ₹12,00,000 is ₹60,000 — which is why the rebate wipes it out entirely at that point.
Marginal relief above the threshold
Sub-section (2) continues beyond clause (a) to deal with income marginally above the threshold. Without such a provision, earning one rupee more than ₹12,00,000 would cost ₹60,000 in tax. Read the full text of sub-section (2) for the exact formulation applicable to your figures before computing a liability just above the limit.
How the rebate interacts with special rates
Where income includes long-term capital gains taxed under section 198, section 198(7) provides that the section 156 rebate is allowed from the income-tax on the total income as reduced by the tax payable on those capital gains. So the rebate does not shelter concessionally taxed capital gains.
Sub-section (3) and the computation order
The rebate is a deduction from income-tax, applied after the tax on total income has been computed but before surcharge and cess as levied by the Finance Act. It is never a deduction from income, and it cannot create a refund of tax that was never payable.
Worked example
Three resident individuals in tax year 2026-27, all taxed under section 202(1) with no deductions other than the standard deduction already applied.
| Total income | Tax under the section 202 slabs | Rebate under section 156(2) | Tax payable |
|---|---|---|---|
| ₹8,00,000 | ₹20,000 | ₹20,000 — 100% of tax, being less than ₹60,000 | Nil |
| ₹12,00,000 | ₹60,000 | ₹60,000 — the full cap | Nil |
| ₹12,50,000 | ₹67,500 | Nil under clause (a); check the marginal relief in the rest of sub-section (2) | ₹67,500 before marginal relief |
The third row shows why marginal relief exists: an extra ₹50,000 of income would otherwise create ₹67,500 of tax. Read the remainder of sub-section (2) to compute the relief for income just above ₹12,00,000.
Now add ₹3,00,000 of long-term capital gains taxed under section 198 to the first taxpayer. Under section 198(7), the rebate is allowed only against tax on the total income as reduced by the tax on those gains — the capital gains tax itself is not rebated away.
Compliance checklist and due dates
- Confirm the taxpayer is an individual resident in India; the rebate is not available to non-residents, firms or companies.
- Identify the regime: ₹60,000 / ₹12,00,000 under section 202(1), ₹12,500 / ₹5,00,000 otherwise.
- Compute the rebate on income-tax before the section 156 deduction itself.
- Where income is just above the threshold, apply the marginal relief in sub-section (2) rather than the flat slab tax.
- Where long-term capital gains under section 198 are present, apply section 198(7) — the rebate is computed on tax excluding the capital gains tax.
- Apply surcharge and cess after the rebate, as provided by the annual Finance Act.
Common mistakes
- Treating the rebate as a deduction from income. It reduces tax, not total income.
- Applying the ₹60,000 rebate where the taxpayer is not chargeable under section 202(1).
- Ignoring marginal relief for income slightly above ₹12,00,000.
- Expecting the rebate to shelter capital gains taxed under section 198 — section 198(7) excludes that tax from the base.
- Claiming the rebate for a non-resident individual.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.