Income Tax Rebate Under Section 87A: Limits and Marginal Relief

Section 87A gives resident individuals a rebate that reduces their income tax liability to nil, up to Rs 60,000 for taxable income up to Rs 12 lakh under the new tax regime, or up to Rs 12,500 for taxable income up to Rs 5 lakh under the old tax regime.

For FY 2025-26 (AY 2026-27), the new regime allows a rebate of up to Rs 60,000 for taxable income up to Rs 12 lakh, and the old regime allows a rebate of up to Rs 12,500 for taxable income up to Rs 5 lakh.

No. The rebate under Section 87A is available only to resident individuals. Non-resident taxpayers cannot claim it, regardless of their income level.

No. Section 87A is available only to individuals. Hindu Undivided Families, partnership firms, and companies cannot claim this rebate under any circumstances.

The rebate is applied to the total tax liability before adding the 4% Health and Education Cess. Cess is calculated on whatever tax remains after the rebate, not on the pre-rebate tax figure.

The rebate cannot be adjusted against tax on long-term capital gains under Section 112A, short-term capital gains under Section 111A, or income taxed at special flat rates, such as lottery or game show winnings.

It depends on which section governs the gain. Long-term capital gains under Section 112A, mainly listed equity shares and equity mutual funds, are specifically excluded from rebate eligibility. Long-term gains taxed under other provisions are not automatically excluded the same way, but the rebate can still only reduce tax up to the specified income limit for the regime chosen.

Marginal relief prevents a taxpayer whose income crosses Rs 12 lakh (new regime) by a small margin from facing a disproportionately large tax bill. Where the extra tax on the amount above Rs 12 lakh exceeds the extra income itself, the rebate is adjusted so the taxpayer only pays tax equal to the amount their income exceeds Rs 12 lakh.

First calculate the excess income above Rs 12 lakh (A). Then calculate the tax liability on total income before cess (B). If B is greater than A, the rebate equals B minus A, and the tax payable equals A, the excess income itself.

For a resident individual with total income of Rs 12,15,000 under the new regime: excess above Rs 12 lakh is Rs 15,000 (A), tax on Rs 12,15,000 before cess is Rs 62,250 (B), and since B exceeds A, the rebate equals Rs 47,250 (B minus A), leaving tax payable of exactly Rs 15,000, plus 4% cess of Rs 600, for a final tax liability of Rs 15,600.

No, the Rs 12 lakh threshold applies to taxable income after all applicable deductions, including the Rs 75,000 standard deduction for salaried individuals under the new regime. This effectively pushes the tax-free gross salary for salaried taxpayers to Rs 12.75 lakh.

No. Surcharge under the Income Tax Act only applies once taxable income crosses much higher thresholds, well beyond the Rs 12 lakh or Rs 5 lakh limits where Section 87A rebate applies, so anyone eligible for the rebate never faces a surcharge.

A deduction reduces your taxable income before tax is calculated, and is available under various sections depending on your investments and expenses. A rebate directly reduces the tax liability itself, after it has already been computed, and under the Income Tax Act is available only through Section 87A, and only to resident individuals.

Calculate your gross total income, subtract eligible deductions to arrive at taxable income, and declare both in your ITR. If your taxable income falls within the specified limit for your chosen regime, the income tax e-filing portal automatically computes and applies the rebate; no separate claim form is needed.

Section 156 of the Income Tax Act, 2025 carries forward the same rebate provisions currently under Section 87A of the 1961 Act, effective from the tax season covering FY 2026-27 income. The current AY 2026-27 filing season, covering income up to March 31, 2026, still falls under Section 87A of the 1961 Act.

No, the rebate is calculated under whichever single regime you have chosen to be taxed under for that year. You cannot combine the new regime's Rs 12 lakh limit with the old regime's deduction structure; the rebate eligibility and limit follow the regime you actually opted into.

Yes, on the same terms as any other resident individual, based on which regime they choose and their taxable income relative to that regime's rebate limit. Senior citizens under the old regime also benefit from a higher basic exemption limit before the rebate calculation even begins.

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