The Section 87A rebate is the reason income up to ₹12 lakh is tax-free under the new regime for FY 2025-26 (AY 2026-27). It is a direct reduction in your tax, not a deduction from your income, and it can bring your tax bill down to zero. This article will help you understand how the rebate works under both regimes, exactly who pays no tax because of it, how marginal relief protects you just above the limit, and who is not eligible.
For the full slab structure, see our new tax regime slabs guide. For a side-by-side comparison, see our old vs new tax regime guide.
Key takeaways
- Under the new regime, the rebate is up to ₹60,000, making taxable income up to ₹12 lakh tax-free (up to ₹12.75 lakh salary after the standard deduction).
- Under the old regime, the rebate is up to ₹12,500, making taxable income up to ₹5 lakh tax-free.
- The rebate is only for resident individuals and does not apply to capital gains taxed at special rates.
- Marginal relief keeps the tax small for income just above ₹12 lakh.
What is the Section 87A rebate?
Section 87A gives a rebate that reduces your final tax. It applies after your tax is calculated on the slabs, and it can wipe out the tax entirely if your income is within the limit. The rebate is the lower of the actual tax payable or the maximum rebate amount, so it never makes your tax negative, it simply brings it to zero at most.
The rebate amount and the income limit are different under the two regimes, so the regime you choose decides how much benefit you get.
Rebate under the new regime: Zero tax up to ₹12 lakh
For FY 2025-26, the new regime gives a rebate of up to ₹60,000. A resident individual with taxable income up to ₹12 lakh pays no tax, because the rebate cancels the entire tax calculated on the slabs.
Salaried individuals and pensioners also get the ₹75,000 standard deduction. After subtracting it, a salary of up to ₹12.75 lakh leaves taxable income of ₹12 lakh, which the rebate makes tax-free. This is why ₹12.75 lakh is the tax-free salary figure, while ₹12 lakh is the tax-free taxable income figure.
Rebate under the old regime: Zero tax up to ₹5 lakh
The old regime also has a Section 87A rebate, but a smaller one — up to ₹12,500, covering taxable income up to ₹5 lakh. With the old regime’s ₹50,000 standard deduction, a salaried person earning up to ₹5.5 lakh can have nil tax, but only if no other income pushes them over. Beyond ₹5 lakh of taxable income, the old-regime rebate does not apply at all.
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Book a free consultationNew vs old regime rebate at a glance
| New regime | Old regime | |
| Maximum rebate | ₹60,000 | ₹12,500 |
| Taxable income limit for zero tax | ₹12,00,000 | ₹5,00,000 |
| Tax-free salary (after standard deduction) | ₹12,75,000 | ₹5,50,000 |
| Applies to capital gains? | No | No |
Marginal relief: Just above ₹12 lakh
When taxable income crosses ₹12 lakh under the new regime, the rebate stops. Without protection, earning slightly more than ₹12 lakh would create a sharp jump in tax. Marginal relief prevents that.
If your taxable income is a little over ₹12 lakh, your tax is limited to the amount by which your income exceeds ₹12 lakh. For example, at a taxable income of ₹12,25,000, the normal tax would be ₹63,750, but marginal relief caps it at ₹25,000 — the excess over ₹12 lakh — which is ₹26,000 after cess. This relief applies up to about ₹12.70 lakh of taxable income, after which the full slab tax applies.
Who is eligible for the Section 87A rebate?
You can claim the rebate only if you are a resident individual. The following points decide eligibility:
- Only resident individuals qualify. Non-residents (NRIs) cannot claim the rebate. Hindu Undivided Families (HUFs), firms, and companies are also not eligible.
- Your taxable income must be within the limit — ₹12 lakh under the new regime or ₹5 lakh under the old.
- The rebate does not apply to special-rate income. Capital gains taxed under Section 111A (short-term equity) and Section 112A (long-term equity) are excluded, so tax on those still applies even if your total income is near the limit.
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How to claim the rebate
You do not apply for the rebate separately. When you file your return on the income tax portal, it is calculated and applied automatically once your taxable income and regime are entered. Your job is to make sure your income and regime are reported correctly so the rebate is applied the right way.
Frequently asked questions
What is the Section 87A rebate?
It is a rebate that directly reduces your income tax, and can bring it to zero if your income is within the limit. For FY 2025-26 it is up to ₹60,000 under the new regime (income up to ₹12 lakh) and up to ₹12,500 under the old regime (income up to ₹5 lakh).
Who is eligible for the 87A rebate?
Only resident individuals. NRIs, HUFs, firms, and companies cannot claim it. Your taxable income must be within ₹12 lakh under the new regime or ₹5 lakh under the old, and the rebate does not apply to capital gains.
Is income up to ₹12 lakh really tax-free?
Yes, under the new regime. The rebate of up to ₹60,000 makes taxable income up to ₹12 lakh tax-free, and the ₹75,000 standard deduction lifts the tax-free salary to ₹12.75 lakh. It does not cover capital gains.
Does the 87A rebate apply to capital gains?
No. Capital gains taxed at special rates under Sections 111A and 112A are excluded from the rebate, so tax on those gains applies even if your other income is within the rebate limit.
What is the rebate under the old regime?
Up to ₹12,500, which makes taxable income up to ₹5 lakh tax-free. Beyond ₹5 lakh of taxable income, the old-regime rebate does not apply.
Do I need to apply for the rebate?
No. It is applied automatically when you file your return, based on the income and regime you report.
Sources and references
- Income Tax Department, e-filing portal — incometax.gov.in
- Income Tax Act, 1961 — Section 87A, Sections 111A and 112A, Section 115BAC
- Rebate limits as provided through the Finance Acts of 2025 and 2026
Disclaimer
This guide is for general informational purposes and is accurate to the best of our knowledge as of June 2026. The tax figures are illustrative; your actual tax depends on your full income, deductions, and other factors. Tax laws can change, and individual circumstances vary. Please verify current details on incometax.gov.in and consult a qualified Chartered Accountant or tax advisor before acting on any information here.
