Section 87A Rebate Explained for FY 2026-27

Last updated: 2026-10-30

Section 87A of the Income Tax Act provides a rebate that can reduce your tax liability to zero, making slab-rate income up to ₹12 lakh effectively tax-free under the new regime for FY 2026-27. This provision was significantly enhanced by the Finance Act 2025 (Budget 2025, announced 1 February 2025) and carried forward unchanged by the Finance Act 2026.

Section 87A Rebate in New Tax Regime 2026

Section 87A (Section 156 of the Income-tax Act, 2025) is available under the new tax regime for tax year 2026-27. Before the Finance Act 2025, the new-regime rebate was ₹25,000 up to ₹7 lakh. From FY 2025-26, the rebate is ₹60,000 and the threshold is ₹12 lakh. This means if your slab-rate income under the new regime is ₹12 lakh or less, your entire slab-rate tax is reduced to zero. For salaried employees, the standard deduction of ₹75,000 further increases the effective tax-free gross salary to ₹12.75 lakh. The rebate does not reduce tax on special-rate capital gains.

What is Section 87A Rebate?

Section 87A is a tax rebate available to resident individuals. A rebate is a reduction in the tax payable, meaning it is applied after calculating your tax based on the applicable slab rates. If the rebate amount is equal to or greater than your tax liability, your tax becomes zero. If your tax liability is less than the rebate, you pay nothing and the excess rebate is not refunded.

The rebate was introduced to provide relief to small taxpayers and was significantly expanded by the Finance Act 2025. For FY 2026-27 (tax year 2026-27 under the Income-tax Act, 2025), the rules are substantially different between the old and new tax regimes.

New Regime Rebate — ₹60,000 Rebate, ₹12 Lakh Threshold

Under the new tax regime (Section 115BAC), the Section 87A rebate for FY 2026-27 is:

• Maximum rebate amount: ₹60,000
• Income threshold: Net taxable income = ₹12,00,000
• Who is eligible: All resident individuals opting for the new regime.
• Standard deduction impact: Salaried employees get ₹75,000 standard deduction, meaning a salary of up to ₹12,75,000 becomes tax-free (₹12L net + ₹75K standard deduction = ₹12.75L gross salary).

How the Rebate Works — Detailed Calculation

The new regime tax slabs for FY 2026-27 are:

For net taxable income of exactly ₹12,00,000:

• Tax on ₹4L-₹8L at 5%: ₹20,000
• Tax on ₹8L-₹12L at 10%: ₹40,000
• Total tax before rebate: ₹60,000
• Section 87A rebate: ₹60,000
• Tax payable: ₹0

Old Regime Rebate — ₹12,500 Rebate, ₹5 Lakh Threshold

Under the old tax regime, the Section 87A rebate remains unchanged from previous years:

• Maximum rebate amount: ₹12,500
• Income threshold: Net taxable income = ₹5,00,000
• Who is eligible: All resident individuals (under 60 years) opting for the old regime.
• Senior citizens: For resident individuals aged 60-80, the threshold is ₹5 lakh with the same ₹12,500 rebate. For super seniors (80+), the rebate applies with a ₹5 lakh threshold.

For net taxable income of exactly ₹5,00,000 under the old regime:

• Tax on ₹2.5L-₹5L at 5%: ₹12,500
• Section 87A rebate: ₹12,500
• Tax payable: ₹0

Marginal Relief for Income Just Above ₹12 Lakh

A crucial feature introduced alongside the enhanced 87A rebate is marginal relief. This ensures that taxpayers whose net taxable income exceeds ₹12 lakh (the rebate threshold) do not end up paying more tax than the amount by which their income exceeds ₹12 lakh.

Marginal Relief Examples

Final tax before 4% health and education cess. With cess, the figures are ₹0, ₹10,400, ₹52,000 and ₹78,000.

Income Tax Calculation Examples

Example 1: Salary of ₹12 Lakh (New Regime)

Gross salary: ₹12,00,000. Standard deduction: ₹75,000. Net taxable income: ₹11,25,000.

• Tax on ₹4L-₹8L at 5%: ₹20,000
• Tax on ₹8L-₹11.25L at 10%: ₹32,500
• Total tax before rebate: ₹52,500
• 87A rebate (since net income ₹11.25L < ₹12L): ₹52,500
• Final tax: ₹0

Example 2: Salary of ₹13.5 Lakh (New Regime)

Gross salary: ₹13,50,000. Standard deduction: ₹75,000. Net taxable income: ₹12,75,000.

• Tax on ₹4L-₹8L at 5%: ₹20,000
• Tax on ₹8L-₹12L at 10%: ₹40,000
• Tax on ₹12L-₹12.75L at 15%: ₹11,250
• Total tax: ₹71,250
• Marginal relief: Tax payable = min(₹71,250, ₹12,75,000 − ₹12,00,000) = min(₹71,250, ₹75,000) = ₹71,250, so relief is ₹0 (tax already lower than the excess over ₹12 lakh)
• Add 4% cess: ₹2,850
• Final tax: ₹74,100

Example 3: Salary of ₹8 Lakh with Deductions (Old Regime)

Gross salary: ₹8,00,000. Standard deduction: ₹50,000. 80C investments: ₹1,50,000. 80D premium: ₹25,000. Net taxable income: ₹5,75,000.

• Tax on ₹2.5L-₹5L at 5%: ₹12,500
• Tax on ₹5L-₹5.75L at 20%: ₹15,000
• Total tax before rebate: ₹27,500
• 87A rebate not available (income > ₹5L)
• Add 4% cess: ₹1,100
• Final tax: ₹28,600

Example 4: Salary of ₹15 Lakh (Comparing Old vs New)

Who is Eligible for Section 87A Rebate?

• Resident individuals only: The rebate is available only to resident individuals. Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) cannot claim this rebate.
• Choice of regime: Available in both old and new regimes, but with different thresholds and rebate amounts.
• Age limit: No age restriction for the rebate itself, but senior citizens (60+) have different basic exemption limits under the old regime.
• Income from all sources: All income (salary, business, capital gains, other sources) is aggregated to determine if you cross the threshold. But the rebate can reduce only the tax on slab-rate income, not the tax on special-rate capital gains.

Who is NOT Eligible?

• Non-resident individuals: Section 87A specifically restricts the rebate to resident individuals.
• HUFs, firms, and companies: The rebate is only for individual taxpayers.
• Taxpayers with net taxable income above ₹12 lakh (new regime) or ₹5 lakh (old regime): The rebate does not apply once income exceeds these thresholds, though marginal relief may apply for income just above ₹12 lakh.

Frequently Asked Questions