Are you a salaried employee or middle-income earner confused about whether you need to pay income tax this year? Here's good news: Section 87A rebate can potentially bring your tax liability to zero if your income falls within prescribed limits. With the new Income Tax Act, 2025 effective from April 1, 2026, understanding this rebate has become even more crucial for tax planning.
In this comprehensive guide, you'll learn everything about Section 87A rebate for FY 2026-27 (Tax Year 2026-27)—who qualifies, income limits under both tax regimes, maximum rebate amounts, special exclusions, and the exact process to claim it while filing your ITR.
- Section 87A rebate for FY 2026-27 remains unchanged: up to ₹60,000 for income up to ₹12 lakh (new regime) or ₹12,500 for income up to ₹5 lakh (old regime)
- Only resident individuals qualify; NRIs, HUFs, companies, and super senior citizens (80+) are not eligible
- Special rate incomes like STCG (Section 111A) and LTCG (Section 112) are excluded from rebate under new regime from FY 2025-26 onwards
- Salaried individuals earning up to ₹12.75 lakh gross can have zero tax under new regime after standard deduction of ₹75,000
What is Section 87A Rebate Under Income Tax Act?
Section 87A of the Income Tax Act, 1961 provides a direct rebate on the tax payable by individual taxpayers who meet specific income and residency criteria. Unlike deductions under Section 80C or 80D that reduce your taxable income, Section 87A rebate directly reduces the amount of tax calculated on your income.
Under the Income Tax Act, 2025 (effective from Tax Year 2026-27), this rebate is housed under Clause 156 (corresponding to Section 87A of the old act), but its operation remains the same. The primary objective is to reduce the tax burden for low and middle-income earners, effectively allowing eligible taxpayers to pay zero income tax.
How Section 87A Works: Rebate vs. Deduction
It's essential to understand the difference between a tax rebate and a tax deduction:
- Tax Deduction (80C, 80D, etc.): Reduces your taxable income before tax calculation
- Tax Rebate (87A): Reduces the final tax amount after calculation
This rebate is applied after calculating your tax but before adding the 4% health and education cess. For example, if your calculated tax is ₹50,000 and you're eligible for ₹60,000 rebate under Section 87A, your tax liability becomes zero.
Section 87A Rebate Limits for FY 2026-27 (Tax Year 2026-27)
Under the 2026 budget, the rebate structure remains unchanged for FY 2026-27. However, the limits vary significantly between the new and old tax regimes. Understanding these limits is crucial for choosing the right regime.
New Tax Regime: Rebate up to ₹60,000
For FY 2025-26 (AY 2026-27), the government has expanded this benefit, raising the new tax regime limit to ₹12 lakh and enhancing the maximum rebate to ₹60,000. This means:
- Income limit: Taxable income up to ₹12,00,000
- Maximum rebate: ₹60,000 or actual tax liability, whichever is lower
- Result: Zero tax liability if tax calculated does not exceed ₹60,000
A major highlight of the new regime is the rebate under Section 87A, which can go up to ₹60,000, ensuring that individuals with taxable income up to ₹12 lakh have zero tax liability. For salaried individuals, the benefit can extend further due to the standard deduction of ₹75,000.
This means salaried employees with gross salary up to ₹12.75 lakh effectively pay zero tax under the new regime. Use our Income Tax Calculator to compute your exact tax liability.
Old Tax Regime: Rebate up to ₹12,500
The rebate under the old tax regime remains at Rs. 12,500 for individuals with taxable incomes up to Rs. 5 lakh. Key points:
- Income limit: Taxable income up to ₹5,00,000
- Maximum rebate: ₹12,500 or actual tax liability, whichever is lower
- Benefit: Income up to ₹5 lakh is effectively tax-free
| Tax Regime | Income Limit | Maximum Rebate | For Salaried (with Std. Deduction) |
|---|---|---|---|
| New Tax Regime | ₹12,00,000 | ₹60,000 | Up to ₹12.75 lakh gross salary = Zero tax |
| Old Tax Regime | ₹5,00,000 | ₹12,500 | Up to ₹5.50 lakh gross salary = Zero tax |
Who is Eligible for Section 87A Rebate?
Not everyone can claim the Section 87A rebate. For FY 2025-26 (AY 2026-27), only resident individuals in India are eligible to claim the Section 87A rebate. Let's break down the eligibility criteria in detail.
Must Be a Resident Individual
The rebate is exclusively for resident individuals. It is not available to Non-Resident Indians (NRIs), Hindu Undivided Families (HUFs), or corporate entities. Your residential status is determined under Section 6 of the Income Tax Act based on the number of days you stayed in India during the financial year.
Income Threshold Requirements
The taxable income, after considering all applicable deductions and exemptions, should not exceed the limit prescribed for the chosen regime:
- New Tax Regime: Taxable income should not exceed ₹12,00,000
- Old Tax Regime: Taxable income should not exceed ₹5,00,000
Who Cannot Claim Section 87A Rebate?
Non-residents, Hindu Undivided Families (HUFs), and companies are not eligible for this benefit. Additionally:
- Non-Resident Indians (NRIs): Not eligible even if income is earned in India
- Hindu Undivided Families (HUFs): Not covered under this provision
- Companies and Firms: Only individuals qualify
- Super Senior Citizens (80+ years): Super senior citizens (aged 80 and above) are not eligible for this rebate
However, senior citizens (60–80 years) are eligible for this rebate if they meet income conditions.
Special Rate Income Exclusion: Important CBDT Clarification
One of the most critical changes from FY 2025-26 onwards relates to special rate income exclusion. This has caused confusion among taxpayers, especially those with capital gains income.
What Incomes Are Excluded from Section 87A Rebate?
The Central Board of Direct Taxes (CBDT) has also issued a clarification stating that effective 1 April 2025, income chargeable at special rate such as short-term capital gains (STCG) under section 111A and long-term capital gains (LTCG) under section 112 shall be excluded while calculating eligibility for rebate under section 87A under the new tax regime.
Incomes excluded from rebate calculation under new regime:
- Short-term capital gains under Section 111A (equity shares/mutual funds taxed at 20%)
- Long-term capital gains under Section 112 (other capital assets)
- Long-term capital gains under Section 112A (already excluded)
- Income from lottery, game shows, and online gaming
- Any other income taxed at special rates
Important Example: Let us take an example of a resident individual who earns a total income of Rs 10,00,000, including STCG under section 111A of Rs 200,000. Effective 1 April 2025, the said individual will not be eligible for a rebate on the STCG despite the total income being below the limit of INR 12,00,000.
If you have capital gains, use our Capital Gain Calculator to understand your tax liability.
Does This Apply to Old Tax Regime?
No. Under the old tax regime, if your total taxable income (including capital gains) does not exceed ₹5 lakh, you can still claim the Section 87A rebate of ₹12,500. The special rate income exclusion applies only to the new tax regime.
How to Claim Section 87A Rebate: Step-by-Step Process
Claiming the Section 87A rebate is straightforward and happens automatically during ITR filing. Claiming the rebate while filing an ITR is easy. You do not have to do anything separately. You just must give your correct income and deduction details. The ITR portal automatically applies the rebate within specific income limits.
Step 1: Calculate Your Gross Total Income
Add up all your income from different sources:
- Salary income (including allowances, perquisites, profits in lieu of salary)
- Income from house property (rent received)
- Business or professional income
- Capital gains (if any)
- Income from other sources (interest, dividends, etc.)
Step 2: Claim Applicable Deductions
Calculate your gross total income for the financial year and reduce your tax deductions for tax savings, investments, etc. to arrive at your total taxable income.
Under New Tax Regime:
- Standard deduction: ₹75,000 (for salaried employees)
- No other deductions like 80C, 80D, HRA allowed
Under Old Tax Regime:
- Standard deduction: ₹50,000
- Section 80C: Up to ₹1,50,000 (PPF, ELSS, LIC, EPF, home loan principal)
- Section 80D: Health insurance premium
- HRA exemption: For house rent paid
- Section 24(b): Home loan interest up to ₹2,00,000
- Other Chapter VI-A deductions
Track all your TDS deductions using our Form 26AS / TDS Fetch Tool to ensure you claim all eligible tax credits.
Step 3: Calculate Tax Liability
Apply the income tax slab rates based on your chosen regime to calculate tax before rebate. For FY 2026-27, there are no changes to the tax slabs. This means that the existing tax slabs and rates will be applicable as it is under both the new and old tax regime.
Step 4: File Your Income Tax Return
Declare your gross income and tax deductions in ITR. Choose the appropriate ITR form:
- ITR-1 (Sahaj): For salary income, one house property, other sources
- ITR-2: For individuals with capital gains, multiple properties
- ITR-3: For business/professional income
The ITR portal automatically applies the rebate within specific income limits. The rebate will be reflected in your tax computation schedule.
Step 5: E-Verify Your Return
Complete the ITR filing by e-verifying through Aadhaar OTP, net banking, or sending a signed ITR-V to CPC Bangalore. For Tax Year 2026-27, ITR-1 and ITR-2 are due by 31st July 2027, and ITR-3/ITR-4 (non-audit) are due by 31st August 2027.
Section 87A Rebate Calculation Examples with Real Numbers
Let's understand how Section 87A rebate works with practical examples for FY 2026-27.
Example 1: Salaried Employee Under New Tax Regime
Profile: Ramesh, age 35, resident individual, gross salary ₹12,00,000
Calculation:
- Gross Salary: ₹12,00,000
- Less: Standard Deduction: ₹75,000
- Taxable Income: ₹11,25,000
Tax Calculation (New Regime Slabs):
- Up to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000 @ 5%: ₹20,000
- ₹8,00,001 to ₹11,25,000 @ 10%: ₹32,500
- Total Tax: ₹52,500
Section 87A Rebate: ₹52,500 (full rebate as income ≤ ₹12 lakh and tax ≤ ₹60,000)
Final Tax Payable: ₹0 (Zero)
Example 2: Individual Under Old Tax Regime
Profile: Priya, age 40, resident individual, total income ₹4,80,000 (after all deductions)
Tax Calculation (Old Regime Slabs):
- Up to ₹2,50,000: Nil
- ₹2,50,001 to ₹4,80,000 @ 5%: ₹11,500
- Total Tax: ₹11,500
Section 87A Rebate: ₹11,500 (full rebate as income ≤ ₹5 lakh and tax ≤ ₹12,500)
Final Tax Payable: ₹0 (Zero)
Example 3: Income Slightly Exceeding ₹12 Lakh - Marginal Relief
Profile: Amit, gross salary ₹12,85,000 under new regime
Calculation:
- Gross Salary: ₹12,85,000
- Less: Standard Deduction: ₹75,000
- Taxable Income: ₹12,10,000
Tax Calculation:
- Up to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000 @ 5%: ₹20,000
- ₹8,00,001 to ₹12,00,000 @ 10%: ₹40,000
- ₹12,00,001 to ₹12,10,000 @ 15%: ₹1,500
- Total Tax Before Rebate: ₹61,500
If the income of an individual slightly exceeds Rs 12 lakhs, and tax is more than the income exceeding Rs.12 lakhs, then the tax will be limited to the income exceeding Rs. 12 lakhs. In simple words, when the extra tax is greater than extra income above Rs. 12 lakhs, the tax payer is only required to pay excess income above Rs. 12 lakh. This is called marginal relief allowed on rebate.
Marginal Relief Applied: Tax limited to ₹10,000 (excess income over ₹12 lakh)
Final Tax Payable: ₹10,000 + 4% cess = ₹10,400
Calculate your exact tax liability using our Income Tax Calculator with built-in marginal relief computation.
Key Changes from Budget 2026 and Income Tax Act 2025
The new Income Tax Act, 2025, will come into effect on 1 April 2026, replacing the Income Tax Act, 1961. However, taxpayers can breathe easy regarding Section 87A.
What Remains Unchanged?
There has been no change in the rules of Section 87A rebates. Under the 2026 budget, the rebate structure remains unchanged for FY 2026-27. The rebate limits, income thresholds, and eligibility criteria continue as they were in FY 2025-26.
Structural Changes in New Income Tax Act 2025
Under this new act, the 'Assessment Year' and 'Previous Year' are now replaced by 'Tax Year'. The tax year 2026-27 will be from 1 April 2026- 31 March 2027.
Other terminological changes:
- Section 87A is now housed under Clause 156 (corresponding to Section 87A of the old act)
- New tax regime is now under Section 202 (earlier Section 115BAC)
- The operational mechanics remain identical
The Union Budget 2026 has kept the Section 87A income tax rebate unchanged under the new regime. Resident individuals with taxable income up to INR 12 lakh can continue to claim a rebate of up to INR 60,000, reducing tax liability on regular income to zero, as in FY 2025–26.
Common Mistakes to Avoid When Claiming Section 87A Rebate
Many taxpayers unknowingly make errors that lead to denial of Section 87A rebate or tax notices. Here are common pitfalls to avoid:
1. Including Special Rate Income in New Regime
Don't assume you'll get Section 87A rebate if your income includes capital gains under new regime. The ₹12 lakh limit applies only to income taxed at normal slab rates, not special rates like STCG or LTCG.
2. Confusing Gross Income with Taxable Income
The income limits (₹12 lakh or ₹5 lakh) refer to taxable income after all deductions, not your gross salary. Always calculate after reducing standard deduction and other eligible deductions.
3. NRIs Claiming the Rebate
If you're a Non-Resident Indian for tax purposes, you cannot claim Section 87A rebate even if your India-sourced income is below the threshold. Verify your residential status before claiming.
4. Not Verifying Auto-Calculated Rebate
While the ITR portal auto-calculates the rebate, always verify the computation schedule. In case of capital gains or special incomes, the portal may incorrectly allow or deny the rebate.
5. Missing Marginal Relief Benefit
If your income is slightly above ₹12 lakh under new regime, ensure marginal relief is applied. The tax department should limit your tax to the excess income above ₹12 lakh, not the full calculated tax.
Section 87A vs. Tax Deductions: What's the Difference?
Many taxpayers confuse rebates with deductions. Understanding this difference is crucial for effective tax planning.
| Aspect | Section 87A Rebate | Tax Deductions (80C, 80D, etc.) |
|---|---|---|
| What it reduces | Directly reduces final tax amount | Reduces taxable income |
| When applied | After tax calculation, before cess | Before calculating taxable income |
| Availability | Only under Section 87A | Multiple sections (80C, 80D, 80E, etc.) |
| Eligibility | Only resident individuals | Individuals, HUFs as per respective sections |
| New Tax Regime | Available (subject to income limits) | Most deductions NOT available |
| Documentation | No separate documentation needed | Investment proofs, receipts required |
Rebates and deductions are two different things. Section 87A Rebate directly reduces the amount of tax. On the other hand, deductions (like 80C and 80D under the old regime) reduce your taxable income. For example, an 80C deduction of ₹1.5 lakh reduces income, and a rebate of ₹60,000 reduces tax. So, the effect of the rebate is more direct and easier to understand.
Frequently Asked Questions
Who is eligible for Section 87A rebate in FY 2026-27?
Only resident individuals are eligible for Section 87A rebate. Under the new tax regime, taxable income should not exceed ₹12 lakh (rebate up to ₹60,000). Under the old tax regime, taxable income should not exceed ₹5 lakh (rebate up to ₹12,500). Non-resident Indians (NRIs), Hindu Undivided Families (HUFs), companies, and super senior citizens (80+ years) are not eligible for this rebate.
What is the maximum rebate under Section 87A for FY 2026-27?
For FY 2026-27 (Tax Year 2026-27), the maximum rebate under Section 87A is ₹60,000 under the new tax regime for individuals with taxable income up to ₹12 lakh. Under the old tax regime, the maximum rebate remains ₹12,500 for individuals with taxable income up to ₹5 lakh. The rebate is applied before adding 4% health and education cess.
Can I claim Section 87A rebate on capital gains income?
No, from FY 2025-26 onwards, Section 87A rebate under the new tax regime does not apply to special rate incomes such as short-term capital gains (STCG) under Section 111A and long-term capital gains (LTCG) under Section 112. As clarified by CBDT, only income taxed at standard slab rates qualifies for this rebate. However, under the old regime, the rebate can still be claimed if total income (including capital gains) does not exceed ₹5 lakh.
How do I claim Section 87A rebate while filing ITR?
The Section 87A rebate is claimed automatically when you file your Income Tax Return (ITR). Calculate your gross total income, reduce eligible deductions to arrive at taxable income, and file ITR-1, ITR-2, or ITR-3 as applicable. The e-filing portal automatically calculates and applies the rebate if you meet eligibility criteria. Ensure your taxable income is within prescribed limits (₹12 lakh for new regime, ₹5 lakh for old regime) to claim this benefit.
Does Section 87A rebate apply to salaried employees earning ₹12.75 lakh?
Yes, salaried employees with gross salary up to ₹12.75 lakh can have zero tax liability under the new tax regime. After claiming the standard deduction of ₹75,000, the taxable income becomes ₹12 lakh, which is within the Section 87A rebate limit. The rebate of up to ₹60,000 offsets the entire tax liability, making the effective tax zero. This benefit is available only under the new tax regime introduced from FY 2023-24.
Conclusion: Maximize Your Tax Savings with Section 87A Rebate
Section 87A rebate is one of the most powerful tax-saving provisions for middle-class taxpayers in India. With the rebate structure remaining unchanged for FY 2026-27, resident individuals can continue to enjoy zero tax liability on incomes up to ₹12 lakh under the new tax regime or up to ₹5 lakh under the old regime.
The key is to understand your eligibility, choose the right tax regime based on your deductions, and be aware of the special rate income exclusions introduced from FY 2025-26. While the new Income Tax Act, 2025 has brought terminological changes, the operational benefits of Section 87A remain intact.
Whether you're a salaried employee, pensioner, or self-employed professional, proper tax planning with Section 87A can significantly reduce your tax burden. Remember to file your ITR on time, verify all auto-calculated rebates, and maintain proper documentation of your income and deductions.
Ready to calculate your exact tax liability and claim Section 87A rebate? Use TaxFetch's comprehensive suite of tax calculation and filing tools to simplify your tax compliance. From income tax calculators to TDS reconciliation and ITR filing assistance, we've got everything you need to maximize your tax savings legally and efficiently.