Section 87A Rebate FY 2025-26: ₹60,000 Rebate and Marginal Relief Explained
Who gets the Section 87A rebate, how the ₹12 lakh limit works, and how marginal relief protects income just above it.
The section 87a rebate lets a resident individual pay no income tax on normal slab-rate income up to ₹12 lakh under the new regime for FY 2025-26, subject to a maximum rebate of ₹60,000. The old-regime limit remains ₹5 lakh, with a maximum rebate of ₹12,500. Marginal relief cushions the new-regime threshold, but special-rate income needs separate treatment. Eligible salaried taxpayers can have nil tax on gross salary up to ₹12.75 lakh.
What does the section 87a rebate actually reduce?
The rebate under Sec. 87A Income-tax Act reduces your calculated income tax, not your taxable income.
First, calculate your total income after permitted exemptions and deductions. Next, calculate income tax under your chosen regime. Then apply the eligible rebate before calculating Health and Education Cess.
This distinction matters: a deduction reduces the income on which tax is calculated, whereas a rebate directly reduces the tax itself.
The rules below apply to FY 2025-26, covering 1 April 2025 to 31 March 2026, and AY 2026-27. The Income-tax Act, 1961 continues to govern this year.
The ₹12 lakh threshold is not a basic exemption limit. Under the new regime, the nil-rate slab ends at ₹4 lakh; the rebate can eliminate the tax calculated on qualifying income above that amount.
Who qualifies, and how do the two regimes compare?
Only resident individuals can claim this rebate, with different income limits and maximum amounts under the two regimes.
Non-resident individuals, HUFs and firms cannot claim it. Being an Indian citizen does not automatically establish eligibility: residential status must be determined under Sec. 6 Income-tax Act.
| Feature | New regime: FY 2025-26 | Old regime: FY 2025-26 |
|---|---|---|
| Relevant provision | Sec. 87A read with Sec. 115BAC Income-tax Act | Sec. 87A Income-tax Act |
| Eligible taxpayer | Resident individual | Resident individual |
| Total-income limit for ordinary rebate | ₹12 lakh | ₹5 lakh |
| Maximum rebate | ₹60,000 | ₹12,500 |
| Rebate amount | Eligible tax or ₹60,000, whichever is lower | Eligible tax or ₹12,500, whichever is lower |
| Marginal relief immediately above the limit | Available, subject to calculation | Not available under Sec. 87A |
| Salary standard deduction | Up to ₹75,000 | Up to ₹50,000 |
The new regime is the default, but it is not necessarily cheaper for everyone. Compare the final liability after considering deductions and exemptions actually available to you.
Neither rebate is a cash grant. If your eligible tax is ₹20,000, the new-regime rebate is ₹20,000, not ₹60,000.
Which tax slabs produce the ₹60,000 rebate?
The new-regime slabs produce ₹60,000 of income tax on ₹12 lakh of income taxed entirely at normal slab rates.
Under Sec. 115BAC Income-tax Act, the applicable slabs are:
| Taxable-income band | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
At ₹12 lakh, tax is ₹20,000 on the ₹4 lakh to ₹8 lakh band and ₹40,000 on the ₹8 lakh to ₹12 lakh band.
The resulting ₹60,000 is fully offset by the rebate for an eligible resident individual. Since income tax after rebate is nil, the 4% Health and Education Cess is also nil.
Why can salary of ₹12.75 lakh result in no tax?
An eligible salaried resident individual can reduce gross salary of ₹12.75 lakh to taxable income of ₹12 lakh using the ₹75,000 new-regime standard deduction.
The standard deduction is provided under Sec. 16(ia) Income-tax Act. No investment is needed to claim it.
The calculation is:
- Gross salary: ₹12,75,000
- Less standard deduction: ₹75,000
- Total taxable income: ₹12,00,000
- Slab tax: ₹60,000
- Less rebate: ₹60,000
- Final tax, including cess: Nil
This assumes no additional taxable income and no special-rate income. Savings interest, fixed-deposit interest, rent or other taxable receipts can push total income above ₹12 lakh.
Also, CTC is not the same as taxable gross salary. Review salary components rather than applying the threshold directly to an employment offer. The standard deduction does not apply to business income or investment income merely because the taxpayer is an individual.
How does marginal relief work just above ₹12 lakh?
For eligible new-regime taxpayers with only normal slab-rate income, marginal relief prevents income tax before cess from exceeding the amount by which total income exceeds ₹12 lakh.
Without relief, a small increase above ₹12 lakh would trigger a disproportionate tax bill because the ordinary rebate stops at that threshold.
Compare:
- Income tax calculated under the new-regime slabs.
- Total income minus ₹12 lakh.
If the first amount is greater, marginal relief reduces it to the second amount. Cess is added afterwards, so the final liability can exceed the income excess.
For example, at taxable income of ₹12.10 lakh, normal income tax is ₹61,500, but relief reduces income tax to ₹10,000 before cess.
For income taxed entirely at slab rates, relief broadly runs out at taxable income of approximately ₹12,70,588. This is not another tax-free limit; it is approximately where normal slab tax equals the income exceeding ₹12 lakh.
Special-rate income requires a separate calculation, so do not apply this simplified cap indiscriminately.
What does marginal relief save in a worked example?
A resident employee with gross salary of ₹12,85,000 and no other income saves ₹53,560, including cess, through marginal relief under the new regime.
Assume the employee claims only the ₹75,000 standard deduction.
| Calculation | Amount |
|---|---|
| Gross salary | ₹12,85,000 |
| Less standard deduction | ₹75,000 |
| Total taxable income | ₹12,10,000 |
| Tax on first ₹4 lakh | ₹0 |
| Tax on next ₹4 lakh at 5% | ₹20,000 |
| Tax on next ₹4 lakh at 10% | ₹40,000 |
| Tax on remaining ₹10,000 at 15% | ₹1,500 |
| Income tax before relief | ₹61,500 |
| Income exceeding ₹12 lakh | ₹10,000 |
| Marginal relief | ₹51,500 |
| Income tax after relief | ₹10,000 |
| Health and Education Cess at 4% | ₹400 |
| Final tax liability | ₹10,400 |
Without marginal relief, tax including cess would have been ₹63,960. Actual tax payable with the return depends on TDS, advance tax and other available credits.
Which income is not covered by the new-regime rebate?
For AY 2026-27, the new-regime rebate cannot offset tax charged at special rates rather than the slab rates under Sec. 115BAC Income-tax Act.
Examples include:
- Specified short-term capital gains under Sec. 111A Income-tax Act.
- Specified long-term capital gains under Sec. 112A Income-tax Act.
- Other long-term capital gains taxable under Sec. 112 Income-tax Act.
- Lottery winnings taxable under Sec. 115BB Income-tax Act.
Such income generally still forms part of total income when testing the ₹12 lakh threshold. Do not exclude capital gains simply because their tax is calculated separately.
The old regime has different restrictions. In particular, the rebate cannot reduce tax on gains covered by Sec. 112A Income-tax Act; do not automatically apply the new-regime restriction to every old-regime case.
How SP & SC helps
SP & SC Legal and Taxation Services, Bengaluru, checks rebate eligibility, regime selection and marginal relief against your actual income details.
Use our Income Tax Calculator, which applies the rebate and marginal relief automatically. Review cases involving capital gains, residency issues or multiple income sources separately.
Our Income Tax Filing service helps reconcile salary, investment income and tax credits. Fees are a fixed quote after reviewing the case.
Frequently asked questions
Can an NRI claim the section 87a rebate?
No. Sec. 87A Income-tax Act restricts the rebate to resident individuals.
Is ₹12 lakh now the basic exemption limit?
No. The new-regime nil-rate slab ends at ₹4 lakh. The rebate eliminates eligible tax up to the specified income threshold.
Is the tax at ₹12.10 lakh exactly ₹10,000?
For qualifying normal slab-rate income, it is ₹10,000 before cess. Including 4% cess, liability is ₹10,400.
Does nil tax mean I can skip filing an ITR?
No. Filing obligations depend on income and other statutory conditions, not merely tax payable after rebate.
Can capital gains leave tax payable below ₹12 lakh?
Yes. Special-rate capital-gains tax is not covered by the new-regime rebate for AY 2026-27.
Written by
SP & SC Editorial
Editorial team at SP & SC Legal and Taxation Services — practising advocates, chartered accountants, and company secretaries publishing hands-on guidance from live client files.
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