Section 87A of Income Tax Act gives a resident individual a rebate that cancels tax on smaller incomes: up to ₹60,000 in the new regime when taxable income does not exceed ₹12 lakh, and up to ₹12,500 in the old regime when it does not cross ₹5 lakh. A rebate means the tax is worked out first and then reduced, here to nil.
That is why, in the new regime, a salaried person pays nothing on pay up to ₹12.75 lakh in FY 2025-26. For tax year 2026-27 onward, look for it as section 156 of the Income-tax Act, 2025. Below are the limits, how the relief works just above ₹12 lakh, and the income it does not cover.
Quick facts
Who gets it
Resident individuals onlyNew regime
Up to ₹60,000, taxable income up to ₹12,00,000Old regime
Up to ₹12,500, taxable income up to ₹5,00,000Relief above ₹12 lakh
Tax capped at the income above ₹12 lakhNot against
Tax on special rate income such as 111A and 112A gainsNew section
156 of the Income-tax Act, 2025
Rebate caps set by section 87a of income tax act
| Regime | FY 2024-25 | FY 2025-26 and tax year 2026-27 |
|---|---|---|
| New regime: maximum rebate | ₹25,000 | ₹60,000 |
| New regime: taxable income limit | ₹7,00,000 | ₹12,00,000 |
| Old regime: maximum rebate | ₹12,500 | ₹12,500 |
| Old regime: taxable income limit | ₹5,00,000 | ₹5,00,000 |
The rebate equals the tax on your slab income or the cap, whichever is lower. At ₹12 lakh of taxable income tax under the new regime slabs comes to exactly ₹60,000, which is why that figure is the cap. The rebate comes off before cess, so no cess is left to pay either. The FY 2024-25 column matters only if you are still filing or revising a return for that year.
What is 87A rebate in income tax: who qualifies
- Resident individuals: yes, of any age, in either regime.
- Non-residents: no, even with low income.
- HUFs, firms and companies: no. An HUF with ₹10 lakh of income pays tax in full; see the HUF tax slab.
The test is taxable income after deductions, not gross pay. A person earning ₹12,60,000 in salary has taxable income of ₹11,85,000 in the new regime after the ₹75,000 standard deduction, so the rebate applies.
Marginal relief just above ₹12 lakh
Without a softener, crossing ₹12 lakh by ₹1 would add ₹60,000 of tax. The new regime instead limits your tax to the part of income above ₹12 lakh. The old regime has no such relief above ₹5 lakh.
Taxable income ₹12,40,000, new regime.
- Tax by slab: ₹60,000 for the first ₹12 lakh, plus 15% of ₹40,000 (₹6,000) = ₹66,000.
- Income above ₹12 lakh: ₹40,000.
- Tax is limited to ₹40,000, so relief is ₹26,000.
- Cess at 4%: ₹1,600. Payable: ₹41,600.
The relief fades out at roughly ₹12,70,600 of taxable income, where normal slab tax and the excess income meet. The marginal relief page has more cases.
Income the rebate does not cover
Salary plus share gains. Pooja has new regime taxable salary of ₹8,00,000 and short term gains from listed shares (111A) of ₹2,00,000. Total income ₹10,00,000, below ₹12 lakh.
- Slab tax on ₹8,00,000: ₹20,000. Rebate covers it.
- Tax on ₹2,00,000 of 111A gains at 20%: ₹40,000. No rebate on this.
- Cess at 4%: ₹1,600. Payable: ₹41,600.
The same applies to long term gains under 112A and other special rate income. If your rebate seems missing in an intimation, this is often why. See capital gains tax for the rates.
How to claim the 87A rebate
There is no form. The return utility applies it once you enter income and pick a regime, and your employer allows it while deducting TDS. Check the line for rebate in the tax computation before you submit on the e-filing portal. If you still owe a small amount, look for special rate income or interest under 234A, 234B or 234C, which the rebate does not cancel.
Errors people make with the rebate
| Problem | Fix |
|---|---|
| Testing the ₹12 lakh limit on gross salary | Use taxable income after the standard deduction |
| An NRI claiming the rebate | Not allowed; NRIs pay tax from the first slab |
| Expecting marginal relief at ₹5.1 lakh in the old regime | Old regime has none; compare regimes |
| Skipping a return because tax is nil | Filing may still be required when income is above the basic exemption limit |
The rebate rules above are general information and not a ruling on your return. They can change in any Finance Act; a chartered accountant or the department's portal can tell you what holds in your case.
Sources we checked
- Income-tax Act, 1961, section 87A
- Income-tax Act, 2025, section 156
- Finance Act, 2025
Frequently asked questions
What does section 87A of income tax provide?
It is the rebate section of the 1961 Act. It reduces tax for a resident individual to nil when taxable income is up to ₹12 lakh in the new regime or ₹5 lakh in the old regime, for FY 2025-26.
Section 156 of the Income Tax Act: what is in it?
Section 156 of the Income-tax Act, 2025 is the new home of the 87A rebate. It applies to income of tax year 2026-27 onward, with the same ₹60,000 and ₹12,500 caps.
What is the rebate meaning in income tax?
A rebate is a cut in the tax amount itself, unlike a deduction, which cuts taxable income. The rebate is applied after slab tax is worked out and before cess.
Is the income tax rebate in the new regime available on capital gains?
No. Gains taxed at their own rates, like 111A and 112A share gains, stay taxable even if total income is under ₹12 lakh.
Up to what salary is the 87A rebate available?
In the new regime, salary up to ₹12.75 lakh, because the ₹75,000 standard deduction brings taxable income to ₹12 lakh. In the old regime it depends on your deductions.