Section 87A Rebate 2026: How Zero Tax Up to 12 Lakh Works (India)
By the 3Tej Research Desk · Published May 23, 2026 · 3 min read
- New regime FY 2025-26: rebate up to 60,000 INR; zero tax for income up to 12 lakh
- Old regime: rebate up to 12,500 INR; zero tax for income up to 5 lakh
- Rebate is on TAX, not income; you compute tax first then subtract the rebate
- If income exceeds the threshold by even 1 INR, the entire rebate disappears (marginal relief applies)
- Available only to RESIDENT individuals; HUFs, NRIs, and firms cannot claim
Section 87A is the single most important tax rebate in the Indian Income Tax Act for salaried and self-employed individuals. The Union Budget 2025-26 raised the new-regime rebate to 60,000 INR, making total income up to 12 lakh effectively tax-free for residents. Misunderstanding how this rebate works produces predictable mistakes: filers underestimate their tax savings, or overshoot the income threshold by a small amount and lose the entire rebate.
What is Section 87A?
Section 87A of the Income Tax Act provides a rebate on tax liability for resident individuals whose total income is below a specified threshold. The rebate is subtracted FROM the calculated tax, not from income. If your calculated tax is less than the rebate, you pay zero tax.
The thresholds and rebate amounts differ between the old regime and the new regime (Section 115BAC). In FY 2025-26 (assessment year 2026-27), the new regime offers the much larger rebate.
Section 87A in the new regime (FY 2025-26)
Eligibility: resident individual with total income up to 12,00,000 INR (12 lakh).
Rebate: up to 60,000 INR (effectively eliminating tax on income up to 12 lakh).
Combined with the 75,000 INR standard deduction for salaried, an EFFECTIVE total income of up to 12,75,000 INR (~12.75 lakh) is tax-free for salaried employees.
| Total income | Tax before rebate (new regime) | 87A rebate | Net tax |
|---|---|---|---|
| 5,00,000 | Nil | Nil | Nil |
| 8,00,000 | 30,000 | 30,000 | Nil |
| 10,00,000 | 45,000 | 45,000 | Nil |
| 12,00,000 | 60,000 | 60,000 | Nil |
| 12,50,000 | 65,000 | Nil (exceeds threshold) | 65,000 (less marginal relief) |
| 15,00,000 | 1,05,000 | Nil | 1,05,000 |
Note the cliff at 12 lakh. At 12,00,000 INR you owe nothing; at 12,50,000 INR you owe 65,000 INR. The marginal relief provision (introduced FY 2024-25 and continued FY 2025-26) caps the additional tax at the additional income, preventing punitive cliff outcomes for marginal earners.
Section 87A in the old regime
Eligibility: resident individual with total income up to 5,00,000 INR (5 lakh).
Rebate: up to 12,500 INR (effectively eliminating tax on income up to 5 lakh).
Combined with 80C and standard deduction, salaried filers can shelter substantial income, but the rebate-eligible income limit is unchanged since 2019.
The old regime is generally beneficial only for filers who use deductions (HRA, 80C, 80D, home loan interest under 24(b), NPS under 80CCD(1B)) that sum to more than the new regime's lower brackets would tax. For salaried employees without major deductions, the new regime almost always wins in FY 2025-26.
Common mistakes
- Confusing rebate with deduction. A deduction reduces taxable INCOME. The 87A rebate reduces calculated TAX. They are different mechanisms.
- Forgetting marginal relief. If your income is 12,01,000 INR, the rebate disappears entirely but you DO get marginal relief: the additional tax cannot exceed the additional income above 12 lakh.
- NRIs claiming the rebate. Only RESIDENT individuals qualify. NRIs filing in India do NOT get 87A.
- HUFs claiming. Hindu Undivided Families also do NOT qualify. Only individuals.
- Cap-gains income. Capital gains taxed at SPECIAL rates (10%, 15%, 20%) are EXCLUDED from the income for 87A purposes in some cases. Long-term capital gains on equity (taxed at 12.5% beyond 1.25 lakh in FY 2025-26) cannot use 87A to offset.
Worked example: salaried at 12 lakh CTC
Software engineer in Bangalore, FY 2025-26, new regime:
| Item | Amount |
|---|---|
| Annual gross salary (CTC) | 12,00,000 |
| Less: standard deduction | (75,000) |
| Taxable income | 11,25,000 |
| Tax under new regime slabs | 52,500 |
| Less: Section 87A rebate | (52,500) |
| Net tax payable | 0 |
| Less: TDS already deducted | (0) |
| Refund / payment due | 0 |
Effective tax rate: 0%. At a CTC of 13 lakh, the same filer would owe approximately 60,000 INR (full bracket tax) since 87A is not available. The cliff is sharp; planning around 12 lakh CTC is high-leverage.
Frequently asked questions
What is the maximum rebate under Section 87A in 2026?
60,000 INR under the new regime (FY 2025-26 and AY 2026-27), available to resident individuals with total income up to 12 lakh. Under the old regime, the rebate is 12,500 INR, available up to 5 lakh income.
Is the 87A rebate available in the old tax regime?
Yes, at 12,500 INR for income up to 5 lakh. The old regime rebate has not been increased since 2019 and is structurally much smaller than the new regime's 60,000 INR threshold.
Can NRIs claim the 87A rebate?
No. Section 87A is available ONLY to resident individuals. NRIs, foreign citizens filing in India, and HUFs cannot claim. Only individuals (other than non-residents) qualify.
What happens if my income is just above 12 lakh?
The rebate disappears entirely (you pay the full bracket tax), but marginal relief applies: your TOTAL tax cannot exceed the amount by which your income exceeds 12 lakh. So at 12,10,000 INR (10,000 above threshold) your tax is capped at 10,000 INR, not 60,500 INR which would be the bracket calculation.
Is capital gains income included for 87A?
Mixed answer. LONG-TERM capital gains on listed equity (taxed at 12.5% beyond 1.25 lakh in FY 2025-26) are NOT eligible to offset against 87A rebate. The rebate applies to tax on slab-rate income only. Short-term gains taxed at slab rates ARE covered.
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