Section 87A rebate: why income up to ₹12 lakh is tax-free, and where it stops
The rebate is what makes the new regime’s ₹12 lakh zero-tax promise work. Your tax is calculated at the slab rates and then cancelled by the rebate. It carries over unchanged into the Income-tax Act, 2025 as section 156.
Reviewed by Vijay Dhawan, Managing Partner, LexVerge LLP · Published
Quick answer
Resident individuals in the new regime get a rebate of up to ₹60,000, which makes income up to ₹12 lakh tax-free (₹12.75 lakh for salaried people after the ₹75,000 standard deduction). In the old regime the rebate is ₹12,500 up to ₹5 lakh. Marginal relief applies just above ₹12 lakh.
- New regime: ₹60,000 rebate up to ₹12 lakh
- Old regime: ₹12,500 up to ₹5 lakh
- Not available against special-rate income such as capital gains on shares
The rebate at a glance
| New regime (default) | Old regime | |
|---|---|---|
| Maximum rebate | ₹60,000 | ₹12,500 |
| Available if total income is | Up to ₹12,00,000 | Up to ₹5,00,000 |
| Salaried: effective tax-free salary | ₹12,75,000 (after ₹75,000 standard deduction) | ₹5,50,000 plus other deductions |
| Marginal relief above the limit | Yes | No |
| Who can claim | Resident individuals only | Resident individuals only |
HUFs, firms, companies and non-residents cannot claim it. Health and education cess is not charged when the rebate brings tax to nil.
How the new-regime rebate works
Slabs for FY 2026-27 are unchanged from last year: nil up to ₹4 lakh, 5% to ₹8 lakh, 10% to ₹12 lakh, 15% to ₹16 lakh, 20% to ₹20 lakh, 25% to ₹24 lakh and 30% above. Tax on exactly ₹12 lakh is ₹60,000 (₹20,000 + ₹40,000), and the rebate cancels all of it.
A salaried person earning ₹12.75 lakh deducts the ₹75,000 standard deduction, reaches taxable income of ₹12 lakh, and pays nothing. See the full slab table in our new tax regime guide.
Marginal relief just above ₹12 lakh
Without relief, earning one rupee over ₹12 lakh would cost ₹60,000 in tax. Marginal relief caps the tax at the amount by which income exceeds ₹12 lakh.
| Taxable income | Slab tax | Tax after marginal relief | Saving |
|---|---|---|---|
| ₹12,10,000 | ₹61,500 | ₹10,000 | ₹51,500 |
| ₹12,40,000 | ₹66,000 | ₹40,000 | ₹26,000 |
| ₹12,70,000 | ₹70,500 | ₹70,000 | ₹500 |
| ₹12,75,000 | ₹71,250 | ₹71,250 | None |
Relief runs out at about ₹12.7 lakh of taxable income. Cess of 4% is added to the tax after relief.
Income the rebate does not cover
The rebate applies only to tax at normal slab rates. Tax on income taxed at special rates must be paid even if total income is under ₹12 lakh:
- short-term gains on listed shares and equity funds (20%);
- long-term gains on listed shares and equity funds above ₹1.25 lakh (12.5%);
- other long-term capital gains taxed at 12.5%;
- winnings from lotteries, games and online gaming (30%);
- crypto and other virtual digital assets (30%); see our crypto tax guide.
Example. Salary of ₹9 lakh and short-term gains on shares of ₹2 lakh. Total income ₹10.25 lakh after standard deduction. The rebate wipes out tax on the ₹8.25 lakh of salary income, but 20% on the ₹2 lakh of gains (₹40,000 plus cess) is still payable.
Claiming it
The rebate is applied automatically in the ITR utility and by your employer when computing TDS. Check three things before filing: that you are resident for the year (see our residential status guide), that special-rate income sits in the right schedule so the rebate is not over-claimed, and that you picked the regime you intended. Over-claimed rebates are a common reason for intimations under the processing section.
Worked examples
| Person | Income | Regime | Tax payable |
|---|---|---|---|
| Salaried, no other income | Salary ₹12,75,000 | New | Nil (taxable ₹12 lakh, rebate ₹60,000) |
| Salaried with FD interest | Salary ₹12,00,000 + interest ₹1,00,000 | New | Taxable ₹12.25 lakh; marginal relief caps tax at ₹25,000 plus cess |
| Freelancer | Presumptive income ₹11 lakh | New | Nil |
| Retired, old regime | Pension and interest ₹4,80,000 after deductions | Old | Nil (rebate up to ₹12,500) |
| Salaried with equity gains | Salary ₹10 lakh + LTCG on shares ₹2.5 lakh | New | Nil on salary; 12.5% on ₹1.25 lakh of LTCG above the exemption = ₹15,625 plus cess |
If your employer has already applied the rebate in TDS and you later add income that pushes you above ₹12 lakh, the rebate falls away in the return and tax becomes payable with interest. Declare other income to your employer during the year to avoid the surprise.
Frequently asked questions
What is the section 87A rebate for FY 2026-27?
Up to ₹60,000 in the new regime for resident individuals with total income up to ₹12 lakh, and up to ₹12,500 in the old regime for income up to ₹5 lakh. It is section 156 of the Income-tax Act, 2025.
Is salary of 12.75 lakh tax-free?
Yes, in the new regime. The ₹75,000 standard deduction brings taxable income to ₹12 lakh, and the rebate cancels the tax.
Can NRIs claim the 87A rebate?
No. Only resident individuals can claim it.
Does 87A rebate apply to capital gains?
Not to capital gains taxed at special rates, such as short-term and long-term gains on listed shares. Tax on those is payable even if total income is below ₹12 lakh.
What is marginal relief under 87A?
If income slightly exceeds ₹12 lakh, tax is capped at the excess over ₹12 lakh. The relief ends at about ₹12.7 lakh of taxable income.
Close to the ₹12 lakh line?
A FilingBase CA checks your regime, rebate and special-rate income before filing, from ₹499.
Keep reading.
New Tax Regime Slabs for FY 2025-26 and FY 2026-27: Rates, the ₹12 Lakh Rebate, What You Can Still Deduct, and Worked Examples
Seven slabs, a ₹60,000 rebate that makes ₹12 lakh tax-free, marginal relief just above it, and the few deductions that survive. With worked examples.
Read guide→GuideSurcharge on income tax
Surcharge slabs for individuals and businesses, the new-regime cap, the 15% cap on gains and dividends, and marginal relief.
Read guide→GuideWhich ITR Form Should You File for AY 2026-27? ITR-1, 2, 3 or 4, Decided in Six Questions
Six questions, one answer. The ITR-1 to ITR-4 rules for AY 2026-27, the ₹1.25 lakh LTCG change, and what a wrong form costs you.
Read guide→Official references
The statutory sources behind this page. We keep our guidance aligned to them — verify anything time-sensitive directly.
- Ministry of Corporate AffairsCompanies Act filings, forms and fee schedules
- Income Tax DepartmentReturns, forms, rates and e-filing utilities
- GST PortalRegistration, returns and rate notifications
Content on this page is reviewed by a chartered accountant or advocate at LexVerge LLP. It is general guidance, not advice on your specific facts.