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.
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.
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.
| Parameter | New Regime (default) | Old Regime |
|---|---|---|
| Income ceiling for rebate | Rs12,00,000 | Rs5,00,000 |
| Maximum rebate | Rs60,000 | Rs12,500 |
| Income effectively tax-free | Up to Rs12 lakh | Up 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 income | No | No |
| Change in Budget 2025 | Enhanced (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.
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.
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)
Rs12,50,000 income (new regime)
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 income | Tax before rebate | 87A rebate | Net tax + 4% cess |
|---|---|---|---|
| Rs7,00,000 | Rs30,000 | Rs30,000 | Rs0 |
| Rs10,00,000 | Rs50,000 | Rs50,000 | Rs0 |
| Rs12,00,000 | Rs60,000 | Rs60,000 | Rs0 |
| Rs12,50,000 | Rs67,500 | Nil | Rs52,000 (with marginal relief) |
| Rs16,00,000 | Rs1,20,000 | Nil | Rs1,24,800 |
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.
Talk to a Tax Expert →New vs Old Regime for the 87A Rebate
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
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.
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.
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.
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.
Section 87A Rebate — Frequently Asked Questions
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