Section 87A Rebate – Income Tax Relief Explained

Eligibility for Rebate Under Section 87A

Topic Category: Tax Or Interest Computation

Section 87A of the Income Tax Act is one of the most beneficial provisions for small and middle-income taxpayers in India. It offers a rebate on income tax payable, effectively reducing or even eliminating the tax liability for eligible individuals. However, many taxpayers are confused about when the rebate applies, how it works under the old and new tax regimes, and whether it can be claimed against special rate incomes such as capital gains. This detailed guide explains when Section 87A rebate is applicable, who can claim it, how much rebate is allowed, and the key restrictions you must know.

Navigate to calculate total tax on your total income to see how rebate under section 87A is applied in case of ITR 1.

Navigate to calculate total tax on your total income to see how rebate under section 87A is applied in case of ITR 2 which handles salary with capital gains.

Navigate to calculate total tax on your total income to see how rebate under section 87A is applied in case of ITR 4 which handles salary income and/or presumptive income.

What Is Section 87A Rebate?

Section 87A provides a rebate from the income tax payable, not from total income. This means the rebate is deducted from the tax amount calculated after applying slab rates. If eligible, the rebate can significantly reduce your tax liability and in many cases bring it down to zero. It is important to understand that Section 87A is available only to resident individual taxpayers and not to companies, firms, LLPs, or non-residents.

Who Can Claim Section 87A Rebate?

You can claim rebate under Section 87A if:

You are an individual taxpayer
You are a resident in India for the financial year
Your total taxable income does not exceed the prescribed limit

The income limit and rebate amount differ depending on whether you opt for the old tax regime or the new tax regime.

Section 87A Rebate Limit (Old vs New Tax Regime)

Section 87A Under the Old Tax Regime

Under the old tax regime:

The rebate is available if total income does not exceed ₹5 lakh.
The maximum rebate allowed is ₹12,500.
The rebate is equal to the tax payable or ₹12,500, whichever is lower.

Section 87A Rebate Old Tax Regime Example

If your total taxable income is ₹5 lakh:

Tax before rebate = ₹12,500
Rebate under Section 87A = ₹12,500
Final tax payable = ₹0

However, if your income exceeds ₹5 lakh even by ₹1, you lose eligibility for the rebate under the old regime.

Section 87A Under the New Tax Regime

The new tax regime has significantly expanded the benefit of Section 87A.

Rebate is available if total income does not exceed ₹12 lakh.
The maximum rebate allowed is ₹60000.
This effectively means no tax is payable if your total income is up to ₹12 lakh (after applying standard deduction of ₹75,000 from total income of ₹12.75 lakh) under the new regime.

Section 87A Rebate New Tax Regime Example

Rules from Budget 2025 for FY 2025-26 (AY 2026-27) amended a few things.

If your taxable income is ₹12 lakh:

Rebate under Section 87A is now available up to ₹12 lakh taxable income.
Maximum rebate available = ₹60,000.
Final tax payable = ₹0
Standard deduction of ₹75,000 applies for salary income under the new regime.

So a salaried person with gross salary up to ~₹12.75 lakh effectively pays zero tax if all income is salary (no special rate income). This makes the new regime particularly attractive for individuals with income up to ₹12 lakh.

Important: Rebate Is Applied on Tax, Not Income

Many people mistakenly believe that income up to ₹12 lakh is exempt. That is incorrect. Income is taxed as per slab rates first. After computing total tax, Section 87A rebate is deducted from the tax amount. If tax after slab calculation is lower than the rebate limit, the entire tax becomes zero.

In Which Cases Section 87A Rebate Is Applied?

Section 87A rebate is applied in the following cases.

Salary Income

If you are a salaried employee and your total taxable income falls within the eligible limit (₹5 lakh old regime / ₹12 lakh new regime), rebate can be claimed.

Business or Professional Income

Self-employed individuals can also claim rebate if their taxable income is within the prescribed limit.

Pension Income

Pensioners who qualify as resident individuals and fall within the income limit are eligible.

Interest Income

Interest from savings accounts, fixed deposits, and other sources is included in total income. If total income remains within the threshold, rebate applies.

Rental Income

Income from house property is included in total income. If overall taxable income remains within limits, rebate can be claimed.

Can Section 87A Be Claimed on Capital Gains?

Know more about treatment of taxes on capital gains.

Under the Old Regime

Rebate under Section 87A can be adjusted against tax on capital gains, including long-term capital gains taxed under special rates, subject to conditions.

Under the New Regime

Following special-rate gains are not eligible for rebate under section 87A.

LTCG under Section 112A (equity)
STCG under Section 111A (equity)
LTCG taxable under Section 112

If your income consists largely of long-term capital gains taxed at special rates, you must check whether rebate is allowed in that specific case.

Slab-taxed gains (e.g., STCG on property, gold, and debt funds acquired after April 1, 2023) are eligible for rebate (if income within limit). Know more about debt funds.

What Is Total Income for Section 87A?

Total income means:

Gross income
Minus deductions including standard deductions and those under Chapter VI-A (if applicable under old regime)
Minus exemptions

Under the new tax regime, since most deductions are not allowed, total income is calculated differently. Rebate eligibility is determined based on total taxable income after deductions.

Situations Where Section 87A Is Not Available

Section 87A rebate is NOT available in the following cases.

If you are a non-resident
If you are a company, firm, LLP, or HUF
If total income exceeds prescribed limits
If tax is payable under certain special provisions where rebate is restricted
If income consists of certain capital gains taxed at special rates under the new regime (as per latest amendments)

Income Tax Rebate 87A Comparison: Old vs New Regime Rebate

Particulars	Old Regime	New Regime
87A Rebate Income limit	₹5 lakh	₹12 lakh (amended as per Budget 2025 rules effective from FY 2025-26)
Maximum rebate	₹12500	₹60000 (amended as per Budget 2025 rules effective from FY 2025-26)
Deductions allowed	Yes	Mostly not allowed
Effective zero-tax income	₹5 lakh (after applying allowable standard deductions)	₹12 lakh (after applying allowable standard deductions)

The new regime clearly offers a higher rebate threshold, but since deductions like 80C, 80D, HRA, etc., are not available, taxpayers must calculate carefully before choosing.

How to Claim Section 87A Rebate?

You do not need to apply separately for section 87A rebate. While filing your Income Tax Return:

1. Compute total taxable income
2. Calculate tax as per slab rates
3. Apply Section 87A rebate in tax computation section
4. Verify final tax payable

Most online ITR utilities automatically calculate this rebate if you are eligible.

Marginal Relief Rules Under Section 87A For FY 2025-26 (AY 2026-27) and beyond

For FY 2025-26 (AY 2026-27), marginal relief is available under the New Tax Regime for resident individuals whose taxable income marginally exceeds ₹12 lakh. It ensures that the additional tax payable does not exceed the incremental income earned above this threshold. This relief effectively extends the "zero-tax" benefit up to approximately ₹12.75 lakh of taxable income.

New Regime Slab Rates (FY 2025-26)

The following slabs apply before the Section 87A rebate and marginal relief are considered:

Up to ₹4,00,000: Nil
₹4,00,001 – ₹8,00,000: 5%
₹8,00,001 – ₹12,00,000: 10%
₹12,00,001 – ₹16,00,000: 15%
₹16,00,001 – ₹20,00,000: 20%
₹20,00,001 – ₹24,00,000: 25%
Above ₹24,00,000: 30%

Examples of Marginal Relief Calculation

The table below illustrates how marginal relief is applied to different income levels under the new regime:

Total Taxable Income	Tax Without Relief	Excess Over ₹12L	Marginal Relief	Tax Payable (excl. Cess)
₹12,00,000	₹60,000 (Rebated)	₹0	-	₹0
₹12,10,000	₹61,500	₹10,000	₹51,500	₹10,000
₹12,50,000	₹67,500	₹50,000	₹17,500	₹50,000
₹12,70,000	₹70,500	₹70,000	₹500	₹70,000
₹12,75,000	₹71,250	₹75,000	₹0	₹71,250

Key Rules for FY 2025-26

Section 87A Rebate: Resident individuals with income up to ₹12 lakh receive a rebate of up to ₹60,000, resulting in zero tax.
Standard Deduction: Salaried individuals can claim an additional ₹75,000 deduction, making gross income up to ₹12.75 lakh effectively tax-free.
High-Income Surcharge: Marginal relief also applies to high-income earners when income exceeds surcharge thresholds of ₹50 lakh, ₹1 crore, or ₹2 crore.
Automatic Application: Marginal relief is automatically calculated by the Income Tax Department's E-filing Portal during ITR filing.

Please navigate to know more about our taxation and return filing services.

Examples of Section 87A Rebate Calculation

Example 1

Tax breakdown

Components	Old Tax Regime	New Tax Regime
Total Gross Income	₹7,55,000.00	₹7,55,000.00
Total Eligible Deductions	₹50,000.00	₹75,000.00
Taxable Income	₹7,05,000.00	₹6,80,000.00
Tax on Taxable Income	₹53,500.00	₹14,000.00
Less: Rebate Under Section 87A(a)	₹0.00	₹14,000.00
Total Tax on Income	₹53,500.00	₹0.00
Health and Education Cess (4% of Tax on taxable Income + Surcharge)	₹2,140.00	₹0.00
Total Tax to be Paid	₹55,640.00	₹0.00

Example 2

Tax Breakdown

Components	Old Tax Regime	New Tax Regime
Total Gross Income	₹5,40,000.00	₹5,40,000.00
Total Eligible Deductions	₹50,000.00	₹75,000.00
Taxable Income	₹4,90,000.00	₹4,65,000.00
Tax on Taxable Income	₹12,000.00	₹3,250.00
Less: Rebate Under Section 87A(a)	₹12,000.00	₹3,250.00
Total Tax on Income	₹0.00	₹0.00
Health and Education Cess (4% of Tax on taxable Income + Surcharge)	₹0.00	₹0.00
Total Tax to be Paid	₹0.00	₹0.00

Example 3

Salary With Capital Gains: Examples for calculation of taxes on various assset classes of capital gains along with salary income have been listed in detail here.

Feel free to use our ITR 2 Tax Calculator which computes tax on capital gains combined with salary income. The page you will navigate to contains comprehensive UI for computation of taxes on capital gains with salary.

Key Takeaways

Section 87A rebate reduces tax liability, not income.
Available only to resident individuals.
Income threshold: ₹5 lakh (old regime), ₹12 lakh (new regime).
Maximum rebate: ₹12,500 (old), ₹60,000 (new).
Not universally applicable to all capital gains under the new regime.
Marginal relief ensures fairness if income slightly exceeds ₹12 lakh.

Frequently Asked Questions (FAQs) on Section 87A Rebate

Q. What is the rebate under Section 87A?

A. The rebate under Section 87A allows eligible individual taxpayers to reduce their income tax liability if their total income is within the specified limit. The rebate directly reduces the tax payable, not the taxable income. Under the new tax regime for FY 2025-26 (AY 2026-27), individuals with taxable income up to ₹12 lakh may receive a rebate of up to ₹60,000, effectively reducing their tax liability to zero in many cases.

Q. What is the eligibility for section 87A rebate?

A. Only the following categories of taxpayers can avail the rebate under Section 87A:

Resident individuals
Taxpayers whose total income does not exceed the prescribed limit
Individuals filing under either the old tax regime or the new tax regime

Non-resident individuals, firms, LLPs, and companies cannot claim this rebate.

Q. What is the maximum rebate allowed under Section 87A?

A. The maximum rebate depends on the tax regime:

Tax Regime	Income Limit	Maximum Rebate
Old Tax Regime	₹5 lakh	₹12,500
New Tax Regime (FY 2025-26)	₹12 lakh	₹60,000

Q. Is Section 87A rebate available on capital gains?

A. Generally, the rebate under Section 87A cannot be applied to income taxed at special rates, such as:

Certain short-term capital gains
long-term capital gains
lottery or betting income

Learn more about how Capital Gains are taxed in India.

However, specific rules may apply depending on the type of capital gain and the applicable tax rate, so taxpayers should verify the treatment when calculating their total tax liability.

Q. What happens if income slightly exceeds the Section 87A limit?

If your income exceeds the rebate limit slightly, you may still benefit from marginal relief.
Marginal relief ensures that the additional tax payable does not exceed the amount by which your income exceeds the rebate threshold.
This prevents a situation where a small increase in income leads to a disproportionately higher tax liability.

Q. Can Section 87A rebate be claimed in both the tax regimes?

A. Yes, the rebate under Section 87A is available in both the old and new tax regimes, but the income limits and rebate amounts differ. The new tax regime offers a significantly higher rebate threshold, making it beneficial for many taxpayers with moderate income levels.

Q. Is the rebate under Section 87A applied before or after cess?

A. The rebate under Section 87A is applied after calculating the income tax but before adding health and education cess. Once the rebate is deducted, cess is applied on the remaining tax amount, if any.

Conclusion

Section 87A is one of the most powerful relief provisions for small and middle-income taxpayers in India. Under the new tax regime, it effectively makes income up to ₹12 lakh tax-free for eligible resident individuals. However, its application depends on total income, residency status, and the nature of income earned. Especially in cases involving capital gains or special rate incomes, taxpayers must calculate carefully to ensure accurate compliance. Before filing your return, always compare tax liability under both old and new regimes to determine which option provides maximum benefit.