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Guide · Tax Slabs & Regimes

Section 87A Rebate — Rs12 Lakh Tax-Free?

How the Section 87A rebate makes income up to Rs12 lakh tax-free in the new regime for FY 2025-26 (AY 2026-27), the old-regime Rs5 lakh limit, marginal relief and what the rebate does not cover.

Written by
TaxClue Editorial Desk
Updated
18 August 2026
Reading time
5 min
Questions
16 answered
  • Updated for AY 2026-27
  • Budget 2025 enhanced
  • New & old regime
Quick Answer

For FY 2025-26 (AY 2026-27), the Section 87A rebate under the new regime is up to Rs60,000 when net taxable income is Rs12,00,000 or less — the tax on Rs12 lakh is exactly Rs60,000, so the rebate reduces it to nil. Under the old regime the rebate stays at Rs12,500 up to Rs5,00,000. Budget 2025 raised the new-regime ceiling from Rs7L to Rs12L and the rebate from Rs25,000 to Rs60,000. The rebate is auto-applied when you file your ITR — no investment or declaration is needed.

At a glance

Section 87A Rebate — New vs Old Regime

The rebate is the lower of the maximum specified amount or your total tax before cess. It is a rebate on tax, not a deduction from income, and it wipes out tax only up to the income ceiling.

ParameterNew Regime (default)Old Regime
Income ceiling for rebateRs12,00,000Rs5,00,000
Maximum rebateRs60,000Rs12,500
Income effectively tax-freeUp to Rs12 lakhUp to Rs5 lakh
Salaried tax-free (with std. deduction)Rs12,75,000 (Rs75,000 SD)Rs5,50,000 (Rs50,000 SD)
Rebate on special-rate incomeNoNo
Change in Budget 2025Enhanced (was Rs7L / Rs25,000)No change

The new regime is the default from AY 2024-25. Section 87A is renumbered as clause 156 in the Income-tax Act, 2025 effective AY 2026-27 — the working stays the same.

It is all-or-nothing at the ceiling

The 87A rebate is not tapered. If new-regime taxable income is even Re1 above Rs12 lakh, the full-slab tax applies — cushioned only by marginal relief (see below). There is no partial rebate once you cross the limit.

Worked example

How the Rebate Zeroes Out Tax on Rs12 Lakh

New-regime slabs for FY 2025-26: nil up to Rs4L, 5% on Rs4L-8L, 10% on Rs8L-12L, 15% on Rs12L-16L, 20% on Rs16L-20L, 25% on Rs20L-24L and 30% above Rs24L.

Rs12,00,000 income (new regime)

Rs0 – Rs4L @ nilRs0
Rs4L – Rs8L @ 5%Rs20,000
Rs8L – Rs12L @ 10%Rs40,000
Tax before rebateRs60,000
Less: 87A rebate−Rs60,000
Net tax payableRs0

Rs12,50,000 income (new regime)

Tax before rebateRs67,500
87A rebate (income > Rs12L)Nil
Marginal reliefApplied
Tax capped at excess over Rs12LRs50,000
Net tax (before cess)Rs50,000

A salaried person also gets the Rs75,000 standard deduction in the new regime, so gross salary up to Rs12,75,000 can land at Rs12 lakh taxable and pay zero tax. Add a 4% health & education cess to any net tax.

Net taxable incomeTax before rebate87A rebateNet tax + 4% cess
Rs7,00,000Rs30,000Rs30,000Rs0
Rs10,00,000Rs50,000Rs50,000Rs0
Rs12,00,000Rs60,000Rs60,000Rs0
Rs12,50,000Rs67,500NilRs52,000 (with marginal relief)
Rs16,00,000Rs1,20,000NilRs1,24,800

Figures use new-regime slabs; standard deduction assumed already applied to arrive at net taxable income.

Not sure which regime zeroes your tax? Get a CA to compute both and file the right one.

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Which regime

New vs Old Regime for the 87A Rebate

Rs12,500

Old Regime · rebate up to Rs5L

  • Rebate only if taxable income ≤ Rs5,00,000
  • Worth it only with heavy deductions (80C, 80D, HRA, home-loan interest)
  • Standard deduction Rs50,000 for salaried
  • Most Chapter VI-A deductions available
Rs60,000

New Regime · rebate up to Rs12L

  • Rebate if taxable income ≤ Rs12,00,000 — far higher ceiling
  • Default regime; best when deductions are low
  • Standard deduction Rs75,000 for salaried
  • Most 80-series deductions not available (few exceptions like 80CCD(2))

For most people between Rs5 lakh and Rs12 lakh with modest investments, the new regime now delivers zero tax where the old regime would not. Compare both with the income tax calculator.

At the boundary

Marginal Relief Just Above Rs12 Lakh

Without relief, a person at Rs12,10,000 would jump from zero tax to over Rs61,000 — paying far more extra tax than the extra Rs10,000 earned. Marginal relief caps the tax so it never exceeds the income above Rs12 lakh.

Marginal relief in one line

Net tax (before cess) is limited to the amount by which income exceeds Rs12,00,000. So at Rs12,10,000 you pay about Rs10,000, not Rs61,500 — relief phases out around Rs12,75,000 where normal slab tax becomes lower.

The fine print

What the 87A Rebate Does Not Cover

  • Special-rate income: no rebate against tax on STCG under Section 111A (20% on listed equity) or LTCG under Section 112A (12.5% above the Rs1.25 lakh exemption) — even if total income is below Rs12 lakh, tax on these portions is not rebated.
  • Non-residents: Section 87A is available only to a resident individual — NRIs cannot claim it.
  • Firms, LLPs, companies, HUFs: the rebate is for individuals only.
  • Winnings taxed at flat rates (lottery, online gaming u/s 115BB/115BBJ) are outside the rebate.

✓You get the full rebate if

  • You are a resident individual
  • Net taxable income ≤ Rs12L (new) or ≤ Rs5L (old)
  • Income is normal slab income (salary, interest, rent, business)

!You lose or reduce it if

  • Taxable income crosses the ceiling (only marginal relief left)
  • Part of income is STCG 111A / LTCG 112A special-rate
  • You are an NRI, firm, HUF or company

The rebate is applied automatically in the ITR — the portal computes it once you enter your income. If your employer deducted TDS despite your tax being nil, file your ITR to claim the refund.

Sources
  1. Section 87A & ITR e-filing: incometax.gov.in
  2. Rebate limit Rs60,000 / income Rs12L: Finance Act 2025 (Budget 2025)
  3. Slabs u/s 115BAC (new regime) FY 2025-26 / AY 2026-27
  4. Marginal relief on rebate: first proviso to Section 87A

Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.

People also ask

Section 87A Rebate — Frequently Asked Questions

Short, direct answers to the 16 questions readers ask most on this topic.

For FY 2025-26 (AY 2026-27) the Section 87A rebate under the new tax regime is up to Rs60,000 when net taxable income is Rs12,00,000 or less — the tax on Rs12 lakh is exactly Rs60,000, so the rebate brings it to nil. Under the old regime the rebate stays at Rs12,500 for income up to Rs5,00,000. Budget 2025 raised the new-regime ceiling from Rs7 lakh to Rs12 lakh and the maximum rebate from Rs25,000 to Rs60,000.

Yes, under the new regime for FY 2025-26. Tax on Rs12 lakh taxable income is Rs60,000, and the Section 87A rebate of Rs60,000 wipes it out, so net tax is zero. For a salaried person the Rs75,000 standard deduction means gross salary up to Rs12,75,000 can end at Rs12 lakh taxable and pay nil tax.

Rs60,000 under the new regime (FY 2025-26) and Rs12,500 under the old regime. The rebate is the lower of that ceiling or your total tax before cess, so you never get a rebate larger than the tax you owe.

Yes. Budget 2025 enhanced the new-regime rebate from Rs25,000 to Rs60,000 and raised the income ceiling from Rs7 lakh to Rs12 lakh, effective FY 2025-26. The old regime was left unchanged at Rs12,500 up to Rs5 lakh.

New regime (FY 2025-26): rebate up to Rs60,000 if taxable income is Rs12 lakh or less. Old regime: rebate up to Rs12,500 if income is Rs5 lakh or less. The new regime is the default and now delivers zero tax for a much wider band, which is why most taxpayers with modest deductions benefit more from it.

If your deductions (80C, 80D, HRA, home-loan interest) are small, the new regime is usually better because it gives zero tax up to Rs12 lakh via the 87A rebate. The old regime helps only when heavy deductions pull your taxable income to Rs5 lakh or below. Compute both with the income tax calculator before deciding.

Yes, but only up to Rs12,500 for taxable income of Rs5 lakh or less. The enhanced Rs60,000 / Rs12 lakh rebate applies only under the new regime.

No rebate is available once new-regime taxable income exceeds Rs12 lakh. However, marginal relief applies just above the limit: your tax is capped so it never exceeds the amount by which income crosses Rs12 lakh. At around Rs12.75 lakh, normal slab tax becomes lower than the relief cap and full slab tax applies.

Marginal relief prevents a small increase in income above Rs12 lakh from triggering a disproportionately large tax. It limits the net tax (before cess) to the income earned above Rs12 lakh. For example, at Rs12,10,000 you pay about Rs10,000 instead of over Rs61,000.

Marginal relief tapers off at roughly Rs12,75,000 of taxable income under the new regime. Beyond that point the ordinary slab tax is lower than the relief cap, so you simply pay the full slab tax with no rebate.

No. The rebate cannot reduce tax on special-rate incomes — STCG under Section 111A (20% on listed equity) or LTCG under Section 112A (12.5% above the Rs1.25 lakh exemption). Even if total income is below Rs12 lakh, the tax on those specific portions is not rebated. It does apply to normal slab income like salary, interest, rent and business profits.

No. Section 87A is available only to a resident individual. Non-resident individuals (NRIs), HUFs, firms, LLPs and companies cannot claim it.

Yes. Resident senior citizens can claim the Section 87A rebate on the same terms as any resident individual — up to Rs60,000 in the new regime or Rs12,500 in the old regime, subject to the income ceilings.

You do not claim it separately — it is auto-applied in your ITR. When you file and your net taxable income is within the ceiling, the e-filing portal computes the rebate and reduces your tax to zero. No investment, declaration or extra form is needed. If TDS was deducted despite nil tax, filing the ITR gets you the refund.

Often yes. Even when the rebate makes your tax nil, you should file if your gross total income exceeds the basic exemption limit, if TDS was deducted, or if you need to claim a refund or carry forward any loss. Filing also creates a clean record for loans and visas.

The Income-tax Act, 2025 restructures and renumbers provisions from AY 2026-27, with the 87A rebate carried into a new clause (commonly cited as clause 156). The substance — Rs60,000 in the new regime up to Rs12 lakh, Rs12,500 in the old regime up to Rs5 lakh — is unchanged; search intent still centres on "Section 87A".