Key Highlights
- Section 157 of ITA 2025 = equivalent of Section 87A of ITA 1961
- Rebate amount: Up to ₹60,000 (100% of income tax payable)
- Applicable when total income does not exceed ₹12,00,000 in a Tax Year
- Salaried individuals: effective zero-tax limit is ₹12,75,000 (after ₹75,000 standard deduction)
- Available under the New Tax Regime only (Section 202); limited benefit under old regime
- Not available against: STCG on listed securities (20%), LTCG (12.5%), or special rate incomes
- Applies to Resident Individuals only — not to HUF, firms, or companies
1. Overview
The Section 157 rebate is the single most powerful tax relief provision for middle-class taxpayers in India. It ensures that individuals whose total income does not exceed ₹12,00,000 in a Tax Year pay absolutely zero income tax — even though they technically fall in taxable slabs.
How does this work? Under the new tax regime, income between ₹4 lakh and ₹12 lakh attracts tax at 5% and 10%. A person earning exactly ₹12 lakh would compute a tax of ₹60,000. Section 157 then steps in and says: since your income does not exceed ₹12 lakh, your entire tax of ₹60,000 is rebated — making your final tax liability zero.
This rebate was known as Section 87A under the old Income Tax Act, 1961. Under the Income Tax Act, 2025, it has been renumbered as Section 157 — the provision and benefit remain the same, but the enhanced rebate amount (₹60,000 vs the old ₹12,500 in old regime) makes it far more impactful.
2. What is the Section 157 Rebate?
Section 157 of the Income Tax Act, 2025 provides that an individual who is a resident in India and whose total income does not exceed a specified limit shall be entitled to a deduction from tax payable of an amount equal to the income tax or a specified maximum amount, whichever is lower.
For Tax Year 2026-27 under the new tax regime:
- Income limit: Total income must not exceed ₹12,00,000
- Rebate amount: 100% of income tax payable, subject to a maximum of ₹60,000
- Effective result: Tax payable = ₹0 for anyone with income ≤ ₹12,00,000
Under the old tax regime, the Section 87A/157 rebate is limited to ₹12,500 for income up to ₹5,00,000 — so the massive benefit is exclusively a new regime feature.
3. Who Can Claim Section 157 Rebate?
The following conditions must be met:
- Person: Must be an Individual (not HUF, firm, AOP, company or trust)
- Residency: Must be a Resident in India (ROR or RNOR — but NOT Non-Resident)
- Income limit: Total income must not exceed ₹12,00,000 in the Tax Year
- Regime: Must be filing under the New Tax Regime (Section 202)
NRIs cannot claim this rebate — even if their Indian income is below ₹12 lakh. Senior citizens and super senior citizens can claim it under the new regime.
4. How Section 157 Rebate Works: Step-by-Step
- Compute total income under all heads (Salary, House Property, Business, Capital Gains, Other Sources)
- Check if total income ≤ ₹12,00,000
- Compute income tax as per new regime slab rates (Section 202)
- If income ≤ ₹12L: apply rebate = 100% of tax or ₹60,000, whichever is lower
- Tax after rebate: ₹0 (since tax on ₹12L is exactly ₹60,000)
- Add 4% Health & Education Cess on remaining tax (which is ₹0 → cess also ₹0)
5. Marginal Relief Above ₹12 Lakh
To address the cliff-edge problem described above, a marginal relief is available. The marginal relief ensures that the tax payable by a person whose income marginally exceeds ₹12 lakh does not exceed the income in excess of ₹12 lakh.
Illustrative example: If income = ₹12,10,000:
- Normal tax on ₹12,10,000 = ₹61,500
- No Section 157 rebate (income exceeds ₹12L)
- Tax without marginal relief = ₹61,500 + cess
- Excess income over ₹12L = ₹10,000
- Marginal relief = Tax (₹61,500) minus Excess income (₹10,000) = ₹51,500 relief
- Tax after marginal relief = ₹61,500 – ₹51,500 = ₹10,000 + cess
This ensures that on the extra ₹10,000 earned over the ₹12L threshold, you pay at most ₹10,000 as additional tax.
6. Section 157 Rebate: Complete Illustration Table
All figures below are illustrative only.
| Gross Salary (₹) | Standard Deduction (₹) | Taxable Income (₹) | Tax Before Rebate (₹) | Section 157 Rebate (₹) | Final Tax (₹) |
|---|---|---|---|---|---|
| 7,00,000 | 75,000 | 6,25,000 | 11,250 | 11,250 | 0 |
| 10,00,000 | 75,000 | 9,25,000 | 32,500 | 32,500 | 0 |
| 12,75,000 | 75,000 | 12,00,000 | 60,000 | 60,000 | 0 |
| 13,00,000 | 75,000 | 12,25,000 | 63,750 | 0 (income > 12L) | ~10,000 (marginal relief) |
| 15,00,000 | 75,000 | 14,25,000 | 98,750 | 0 | 1,02,700 (with cess) |
7. Is Section 157 Rebate Available on Capital Gains?
This is one of the most important nuances. The Section 157 rebate is available only against tax on income chargeable at normal slab rates. It is not available against tax on:
- Short-Term Capital Gains on listed equity shares/equity mutual funds (Section 196 — 20% flat)
- Long-Term Capital Gains (Section 195 — 12.5% flat above ₹1.25 lakh)
- Casual income like lottery/game show winnings (30% flat)
- Any other income taxed at a special flat rate
Example (Illustrative only): Suresh has salary income of ₹9 lakh and STCG on mutual funds of ₹3 lakh. Total income = ₹12 lakh.
- Tax on salary (₹9L at slab rates) = ₹27,500
- Tax on STCG (₹3L at 20%) = ₹60,000
- Section 157 rebate: available only against ₹27,500 (salary tax) — not against STCG tax of ₹60,000
- Final tax = ₹0 + ₹60,000 + cess = ₹62,400
This rule means that if your ₹12 lakh income includes special-rate income, you cannot claim the full rebate benefit — even if total income is ≤ ₹12 lakh.
8. Eligibility Summary
| Criteria | Section 157 Rebate Available? |
|---|---|
| Resident Individual, income ≤ ₹12L, new regime | ✅ Yes — full rebate up to ₹60,000 |
| Non-Resident Individual, income ≤ ₹12L | ❌ No — NRIs cannot claim this rebate |
| HUF, income ≤ ₹12L | ❌ No — only Individuals can claim |
| Resident Individual, income ₹12L including STCG | ⚠️ Partial — rebate not available against STCG tax |
| Resident Individual, income ₹12.01L | ❌ No rebate — but marginal relief available |
| Old regime, income ≤ ₹5L | ✅ Limited — ₹12,500 rebate only |
9. How to Claim Section 157 Rebate in ITR
The Section 157 rebate is auto-computed in the ITR when you file online through the Income Tax Portal (incometaxindia.gov.in). You do not need to separately "claim" it — the system applies it automatically once your total income and tax computation are correctly entered. Always verify that the rebate has been correctly applied by checking Schedule Tax Computation before submitting your ITR.
10. Section 157 vs Section 87A (Old vs New Act)
| Feature | Section 87A (ITA 1961) | Section 157 (ITA 2025) |
|---|---|---|
| Applicable period | Up to Tax Year 2025-26 (AY 2026-27) | From Tax Year 2026-27 |
| Rebate under new regime | ₹25,000 (rebate for income ≤ ₹7L) / ₹60,000 (budget 2025 enhancement for ≤ ₹12L) | ₹60,000 (for income ≤ ₹12L) |
| Rebate under old regime | ₹12,500 (for income ≤ ₹5L) | ₹12,500 (for income ≤ ₹5L) |
| Eligible persons | Resident Individuals only | Resident Individuals only |
| Available against STCG/LTCG | No (clarified by CBDT) | No |
11. Latest Updates & Amendments
- Finance Act 2025: Enhanced the Section 87A/157 rebate to ₹60,000 for new regime taxpayers with income up to ₹12 lakh — effective from Tax Year 2025-26 and carried forward under ITA 2025
- Income Tax Act, 2025: Section 87A of old law is now renumbered as Section 157; benefit is identical
- CBDT Circular 2024: Clarified that the rebate under Section 87A is not available against tax on STCG on listed equity (Section 111A equivalent) — carried forward as law under ITA 2025
- Marginal relief provisions for income marginally above ₹12 lakh are built into the ITA 2025 computation framework
12. Penalties for Incorrect Rebate Claims
- Incorrectly claiming Section 157 rebate on capital gains tax = under-reporting of income → 50% penalty under Section 439 of ITA 2025
- NRI claiming Section 157 rebate incorrectly = tax demand + interest under Section 416 (1% per month)
- All ITR portal computations are processed by the CPC — mismatches trigger intimation under Section 287 of ITA 2025
13. Why TaxClue
The Section 157 rebate seems simple but has important nuances — especially around capital gains, NRI status, and the marginal relief computation. TaxClue ensures your rebate is correctly applied, your ITR is filed with accurate tax computation, and any intimation or demand related to rebate is professionally handled. Contact us for expert ITR filing support.
14. Our Process
- Review all income sources — salary, capital gains, business, other sources
- Determine correct taxable income for Section 157 eligibility
- Compute rebate separately for slab-rate income and special-rate income
- Apply marginal relief if applicable
- File ITR with correct rebate computation on Income Tax Portal
15. Related Services
- ITR Filing under New Tax Regime
- Capital Gains Tax Computation and Filing
- Income Tax Notice and Demand Handling
- NRI Tax Advisory
- Income Tax Refund Follow-up
16. Resources & Checklist
- ☐ Compute total income from all sources (including capital gains)
- ☐ Verify income ≤ ₹12,00,000 for Section 157 eligibility
- ☐ Check if any income is taxed at special rates (STCG, LTCG, lottery)
- ☐ Verify residential status (must be Resident to claim rebate)
- ☐ Cross-check rebate in ITR computation schedule before submitting
- ☐ Retain Form 26AS and AIS for reconciliation
17. Contact Us
Section 157 of the Income Tax Act, 2025 is one of the most taxpayer-friendly provisions in Indian tax law. If your income is ₹12 lakh or below, you likely owe zero income tax — but you still need to file an ITR if income exceeds the basic threshold. Contact us to ensure your rebate is correctly applied and your ITR is filed on time.