Section 87A rebate rises to Rs 60,000 in the new tax regime, making income up to Rs 12 lakh tax-free for FY 2025-26

For the financial year 2025-26, which is assessment year 2026-27, a resident individual who files under the new tax regime and whose total income does not exceed Rs 12,00,000 pays nothing at all in income tax. The rebate under section 87A of the Income-tax Act, 1961 now runs up to Rs 60,000 in the new regime, and that is precisely the amount of tax the new regime slabs generate on taxable income of Rs 12,00,000.

That one number does more work than any deduction most salaried readers will claim this year. A salaried taxpayer also gets the standard deduction of Rs 75,000 under the new regime, so a gross salary of Rs 12,75,000 falls to taxable income of Rs 12,00,000 and carries a nil liability. The Income Tax Department's help page for salaried individuals for assessment year 2026-27 sets out both the rebate ceiling and the slab structure that produces it.

What the Section Says

Section 87A allows a resident individual to set a rebate against the income-tax computed on total income, before the health and education cess is added. The rebate is the lower of two amounts: the tax actually payable on the slabs, and the statutory ceiling for the regime chosen. Under the new regime in section 115BAC, that ceiling is Rs 60,000 and it is available only where total income does not exceed Rs 12,00,000. Under the old regime the ceiling stays at Rs 12,500, available only where total income does not exceed Rs 5,00,000.

Two conditions are doing the heavy lifting, and both are easy to miss. First, the benefit is confined to resident individuals: a non-resident individual, a Hindu undivided family, a firm or a company cannot claim it at any income level. Second, the Rs 12,00,000 test is applied to total income after deductions, not to gross salary, so the standard deduction of Rs 75,000 is subtracted before the threshold is tested.

The new regime is the default for FY 2025-26, so a taxpayer who does nothing is assessed under it. The slabs that generate the Rs 60,000 figure are set out below, and they are what a reader should check against any calculation an employer's payroll team hands over in the last quarter of the year.

Run those rates across Rs 12,00,000 and the tax comes to Rs 20,000 on the 5% band plus Rs 40,000 on the 10% band, which is Rs 60,000 exactly. The rebate wipes it out, and because health and education cess of 4% is charged on tax plus surcharge, a nil tax figure also means a nil cess figure. Our new regime income tax calculator applies the same slab table if you would rather not do the arithmetic by hand.

One point deserves care. Where total income crosses Rs 12,00,000 in the new regime, the rebate falls away entirely, but marginal relief exists so that a taxpayer just above the line is not worse off than one just below it. The relief is a statutory computation rather than a rule of thumb, so use the marginal relief calculator for an income between Rs 12,00,000 and roughly Rs 12,75,000 rather than estimating it.

Worked Example

Take three resident individuals, all salaried, all filing for FY 2025-26, and all under the new tax regime unless stated otherwise.

Priya, gross salary Rs 12,75,000. The standard deduction of Rs 75,000 brings her total income to Rs 12,00,000. Slab tax is Rs 20,000 plus Rs 40,000, or Rs 60,000. The section 87A rebate of Rs 60,000 cancels it in full. Cess of 4% is charged on nil, so it is nil. Priya's total liability for the year is Rs 0.

The same Priya, but under the old regime. Her standard deduction is Rs 50,000 rather than Rs 75,000, so total income is Rs 12,25,000 assuming she claims nothing else. Old regime slab tax is Rs 12,500 on the 5% band, Rs 1,00,000 on the 20% band and Rs 67,500 at 30% on the Rs 2,25,000 above Rs 10,00,000, a total of Rs 1,80,000. Section 87A gives her nothing, because Rs 12,25,000 is well above the Rs 5,00,000 old regime ceiling. Cess of 4% adds Rs 7,200. Her liability is Rs 1,87,200.

Rahul, total income Rs 12,10,000 in the new regime. He is Rs 10,000 over the line, so the Rs 60,000 rebate is not available to him at all. His slab tax before any relief is Rs 20,000 plus Rs 40,000 plus 15% of Rs 10,000, which is Rs 61,500, and cess of 4% would take that to Rs 63,960. Marginal relief applies to him and will reduce that figure; the statutory relief computation is what our marginal relief calculator is for.

The gap between the first two rows is the whole argument for checking your regime before the year closes. On effectively the same pay packet, the difference is Rs 1,87,200. If you have substantial old regime deductions such as a home loan interest claim or a large section 80C corpus, the comparison can still tilt the other way, which is what our old regime versus new regime comparison is built to test.

How the Rebate Sits With Surcharge and Cess

Surcharge and cess sit outside the rebate and are frequently misread. Health and education cess is charged at 4% on the sum of tax and surcharge, so it follows the rebate down: if section 87A reduces tax to nil, the 4% is levied on nil. Surcharge only begins to bite at total income above Rs 50,00,000, which is more than four times the section 87A ceiling of Rs 12,00,000, so it never interacts with the rebate in practice.

For completeness, surcharge runs at 10% between Rs 50,00,000 and Rs 1,00,00,000, 15% between Rs 1,00,00,000 and Rs 2,00,00,000, and 25% between Rs 2,00,00,000 and Rs 5,00,00,000. Above Rs 5,00,00,000 the new regime caps surcharge at 25%, while the old regime applies 37%. If you are reading a chart that shows 37% at the top of the new regime, the chart is out of date.

Common Mistakes

Testing gross salary against Rs 12,00,000 instead of total income. A gross salary of Rs 12,60,000 looks disqualifying at first glance, but the Rs 75,000 standard deduction brings total income to Rs 11,85,000, comfortably under the ceiling, and the rebate applies in full.

Assuming the Rs 60,000 figure applies under the old regime. It does not. A taxpayer who opts out of section 115BAC for FY 2025-26 is back to a Rs 12,500 ceiling and a Rs 5,00,000 income test, and the standard deduction drops from Rs 75,000 to Rs 50,000 at the same time.

Treating section 80CCD(1B) as a way to get under the line in the new regime. Section 80CCD(1B) is NOT allowed in the new regime. The additional Rs 50,000 deduction for a National Pension System contribution under section 80CCD(1B) is available only under the old regime, so it cannot be used to pull total income below Rs 12,00,000 in the new regime.

Forgetting that the rebate is capped by the tax itself. Section 87A gives the lower of tax payable and Rs 60,000. A taxpayer with total income of Rs 7,00,000 has slab tax of Rs 15,000, so the rebate is Rs 15,000, not Rs 60,000. There is no refund of the unused Rs 45,000.

Ignoring marginal relief when income is only slightly above Rs 12,00,000. Rahul in the example above is Rs 10,000 over the line and faces a pre-relief figure of Rs 63,960. Skipping the relief computation overstates the liability, and a self-assessment payment made on that basis is money parked with the department until the refund arrives.

Claiming the rebate as a non-resident. Section 87A is confined to resident individuals. A returning non-resident should check residential status for FY 2025-26 first, because the entire Rs 60,000 turns on it.

FAQ

Is income up to Rs 12 lakh completely tax-free for FY 2025-26?

For a resident individual under the new tax regime, yes. Slab tax on total income of Rs 12,00,000 is Rs 60,000, the section 87A rebate is up to Rs 60,000, and the 4% health and education cess is charged on the post-rebate figure, so the final liability is nil.

Does a salaried person get more than Rs 12 lakh of tax-free salary?

Yes, because the standard deduction comes off first. Under the new regime the standard deduction is Rs 75,000, so gross salary of Rs 12,75,000 reduces to total income of Rs 12,00,000 and still qualifies for the full Rs 60,000 rebate.

What is the section 87A rebate under the old regime for FY 2025-26?

It remains up to Rs 12,500, and only where total income does not exceed Rs 5,00,000. The Rs 60,000 ceiling and the Rs 12,00,000 threshold belong to the new regime alone.

What happens if my total income is Rs 12,50,000?

The rebate is not available, because Rs 12,50,000 exceeds the Rs 12,00,000 ceiling. Marginal relief applies in the band just above Rs 12,00,000, so compute the figure with the marginal relief calculator rather than assuming the full slab tax is payable.

Do I have to file a return if my tax comes to nil after the rebate?

The rebate reduces tax, not the filing obligation. Filing thresholds are tested separately, and the due date for a non-audit individual for assessment year 2026-27 is 31 July 2026. Our guide to ITR due dates for AY 2026-27 sets out the belated return window as well.

Can a Hindu undivided family or a firm claim section 87A?

No. The rebate is available to resident individuals only, whatever the income level. A Hindu undivided family with total income of Rs 11,00,000 pays slab tax with no section 87A relief.

Where can I read the statutory text myself?

Section 87A as it stands is on India Code, and the department's own summary of rates and rebates for assessment year 2026-27 is on the income tax e-filing portal help section. If a term in either source is unfamiliar, our glossary entries on tax rebate and cess explain the mechanics in plain language.