Section 87A rebate for FY 2025-26: up to Rs 60,000 for resident individuals under the new regime

Section 87A of the Income-tax Act, 1961 is the single provision that lets a large share of India's salaried and small-business taxpayers file a return showing tax payable of exactly zero. For the financial year 2025-26 (assessment year 2026-27), the rebate has been enlarged sharply under the new regime: a resident individual with total income up to Rs 12,00,000 can claim a rebate of up to Rs 60,000, wiping out the entire slab liability. That is nearly five times the Rs 12,500 rebate that has applied under the old regime since AY 2020-21.

This guide explains exactly what Section 87A grants for FY 2025-26, who qualifies, how the new marginal relief works just above the Rs 12,00,000 line, and the errors that most often surface when the return is picked up in scrutiny. Every figure below is drawn from the statutory rate framework the Income Tax Department applies for AY 2026-27.

What the Section Says

Section 87A allows a resident individual to reduce the income-tax otherwise payable on total income by a rebate. Two distinct ceilings run in parallel for FY 2025-26, depending on which regime you elect.

Under the new regime (Section 115BAC(1A), the default for FY 2025-26), the rebate is the lower of the tax computed on total income or Rs 60,000, and it is available only where total income does not exceed Rs 12,00,000. Under the old regime, the rebate is the lower of the tax payable or Rs 12,500, available where total income does not exceed Rs 5,00,000.

The eligibility test turns on three words in the statute: resident, individual, and total income. A non-resident (NRI) cannot claim the rebate at all, regardless of how low the Indian income is. Hindu Undivided Families, firms and companies are equally excluded, because the relief is confined to individuals. "Total income" means income after all eligible deductions, so the number you test against the Rs 12,00,000 or Rs 5,00,000 threshold is the net figure on which slab tax is charged, not gross salary.

A salaried taxpayer gets extra headroom because of the standard deduction of Rs 75,000 available under the new regime for FY 2025-26 (Rs 50,000 under the old regime). Since the Rs 12,00,000 threshold is tested on income after the standard deduction, a salaried resident with gross salary up to Rs 12,75,000 can still land at Rs 12,00,000 of taxable income and pay nil tax after the Section 87A rebate. You can model any figure on the income tax calculator or compare regimes side by side on the old vs new regime calculator.

One structural point matters for higher earners: the rebate is set against tax charged at slab rates only. It cannot be used to cancel tax on incomes charged at special rates, such as long-term capital gains on listed equity taxed at 12.5% under Section 112A. That distinction is where a lot of returns go wrong, and it is covered under Common Mistakes below. For a plain-language definition of the relief itself, see the glossary entry on tax rebate.

Worked Example

Consider Anjali, a resident salaried employee, for FY 2025-26 under the new regime.

Her gross salary is Rs 12,75,000. She first subtracts the standard deduction of Rs 75,000, leaving total income of Rs 12,00,000. Applying the FY 2025-26 new-regime slabs:

The tax before rebate is Rs 60,000. Because her total income is exactly Rs 12,00,000 and she is a resident individual, Section 87A grants a rebate of the lower of Rs 60,000 or Rs 60,000 — that is, the full Rs 60,000. Tax payable falls to Rs 0, so the 4% health and education cess is charged on nil and her total liability is Rs 0.

Now take Rohan, whose total income is Rs 12,10,000 — just Rs 10,000 over the line. His slab tax is Rs 20,000 plus Rs 40,000 plus 15% of Rs 10,000 (Rs 1,500), totalling Rs 61,500. Because his income exceeds Rs 12,00,000, the Section 87A rebate is gone entirely. Without relief, a Rs 10,000 rise in income would trigger a Rs 61,500 tax bill.

This is where marginal relief rescues the new regime. The rule caps the tax payable so that it cannot exceed the amount by which income crosses Rs 12,00,000. Rohan's income exceeds the threshold by Rs 10,000, so his tax is limited to Rs 10,000, and marginal relief of Rs 51,500 (Rs 61,500 minus Rs 10,000) is allowed. Adding 4% cess, he pays Rs 10,400.

Marginal relief tapers off as income rises. The break-even point is roughly Rs 12,70,588: beyond that, ordinary slab tax is lower than the "excess over Rs 12,00,000" cap, so the relief no longer bites and full slab tax applies. Run your own number through the new regime calculator to see where you sit.

Crucially, marginal relief is a new-regime feature only. In the old regime, a resident with total income of Rs 5,10,000 gets no Section 87A rebate and no marginal relief: the tax of Rs 14,500 (Rs 12,500 plus 20% of Rs 10,000) stands in full, plus Rs 580 cess, for Rs 15,080. Ten thousand rupees of extra income there costs over Rs 15,000 in tax with no cushion.

Common Mistakes

Claiming the rebate as a non-resident. The most frequent scrutiny trigger is an NRI showing a Section 87A rebate on Indian-source income. The rebate is expressly confined to resident individuals; residential status is determined under Section 6 by days of stay, and a mis-declaration here is easy for the department to cross-check against passport and Form 26AS data.

Confusing Rs 60,000 with the old-regime Rs 12,500. Taxpayers opting for the old regime for FY 2025-26 sometimes claim Rs 60,000 by mistake. The Rs 60,000 ceiling exists only in the new regime under Section 115BAC(1A); in the old regime the ceiling remains Rs 12,500 and the income threshold is Rs 5,00,000, not Rs 12,00,000.

Testing the threshold against gross salary. The Rs 12,00,000 limit applies to total income, computed after the Rs 75,000 standard deduction under the new regime. A taxpayer earning Rs 12,60,000 gross often assumes they are ineligible, when in fact their total income of Rs 11,85,000 sits comfortably within the rebate.

Setting the rebate against special-rate income. Section 87A reduces tax on slab income. It cannot offset tax on long-term capital gains under Section 112A, which are taxed at 12.5% above the Rs 1,25,000 annual exemption, nor short-term capital gains under Section 111A at 20%. A return that zeroes out equity LTCG using the rebate will be corrected. Model gains separately on the capital gains calculator.

Forgetting cess is charged on post-rebate tax. The 4% health and education cess and any surcharge apply on tax after the Section 87A rebate. Where the rebate reduces tax to nil, cess is nil too. Some taxpayers wrongly add cess before applying the rebate and over-report their liability.

FAQ

What is the maximum Section 87A rebate for FY 2025-26?

Under the new regime for FY 2025-26 (AY 2026-27), a resident individual can claim up to Rs 60,000 where total income does not exceed Rs 12,00,000. Under the old regime, the maximum stays at Rs 12,500 where total income does not exceed Rs 5,00,000.

Can an NRI claim the Section 87A rebate?

No. Section 87A is available only to a resident individual. A non-resident cannot claim it on any Indian-source income, whatever the income level. Residential status is decided under Section 6 of the Income-tax Act, 1961.

Does the rebate apply automatically or must I claim it?

The rebate is applied when you compute tax in your income-tax return; the ITR utility calculates it automatically once residential status and total income are entered correctly. There is no separate form, but the return must reflect total income within the Rs 12,00,000 (new) or Rs 5,00,000 (old) threshold.

What happens if my income is just above Rs 12,00,000?

In the new regime, marginal relief caps your tax at the amount by which income exceeds Rs 12,00,000. At a total income of Rs 12,10,000, tax is limited to about Rs 10,000 plus 4% cess rather than the full Rs 61,500 slab tax. Marginal relief phases out near Rs 12,70,588.

Can I use the rebate against capital gains tax?

No. The rebate offsets tax on slab-rate income only. It cannot reduce tax on long-term capital gains taxed at 12.5% under Section 112A or short-term gains at 20% under Section 111A. Those are charged at special rates outside the slab system.

Is the Rs 60,000 rebate available in the old regime?

No. The Rs 60,000 ceiling exists only in the new regime under Section 115BAC(1A) for FY 2025-26. If you opt for the old regime, the rebate remains Rs 12,500 with a Rs 5,00,000 income threshold.

Which regime should I choose to maximise the rebate?

For most residents with income up to Rs 12,00,000, the new regime is more generous because it delivers a nil-tax outcome via the Rs 60,000 rebate plus a Rs 75,000 standard deduction. Compare both on the old vs new regime calculator before locking in your choice for the year.