Section 87A Rebate FY 2025-26: Rs 60,000 Up To Rs 12 Lakh Income and the Marginal Relief Trap

The single biggest change salaried taxpayers will notice while filing their return for FY 2025-26 (assessment year 2026-27) is the enlarged rebate under Section 87A of the Income-tax Act, 1961. For anyone opting into the new tax regime under Section 115BAC(1A), the maximum rebate has jumped to Rs 60,000 and the income ceiling to Rs 12,00,000, well above the far lower Rs 7,00,000 ceiling that applied in FY 2024-25. In plain terms, a resident individual with a total income of exactly Rs 12,00,000 now pays zero income tax. But the moment your income crosses that line by even Rs 100, a little-understood mechanism called marginal relief decides whether you owe Rs 400 or nearly Rs 64,000. This guide walks through the statute, a rupee-by-rupee worked example, and the scrutiny mistakes that cost taxpayers their refunds.

What the Section Says

Section 87A grants a rebate to a resident individual whose total income does not exceed a specified threshold. The rebate is deducted from the income tax computed on total income, before the 4% health and education cess is added. The Income Tax Department confirms that for FY 2025-26 a resident individual in the new regime gets a rebate equal to 100% of the tax payable or Rs 60,000, whichever is lower, when total income is up to Rs 12,00,000.

Two parallel rebate limits exist because two regimes coexist in FY 2025-26. Under the default new regime the ceiling is Rs 12,00,000 with a maximum rebate of Rs 60,000; under the old regime the ceiling stays at Rs 5,00,000 with a maximum tax rebate of Rs 12,500, unchanged since FY 2019-20. Only a resident individual can claim Section 87A; a non-resident, a Hindu Undivided Family, a firm or a company cannot. The rebate can never exceed the income tax actually payable, so it cannot create a refund on its own.

A crucial carve-out: the Rs 60,000 rebate applies only to income taxed at the normal slab rates. Income that is charged at special rates, such as long-term capital gains on equity taxed at 12.5% under Section 112A, is excluded from the rebate computation. If part of your Rs 12,00,000 is equity LTCG, only the slab-rate portion qualifies for the rebate. You can model both regimes side by side using our old vs new regime calculator before you lock your choice for the year.

Worked Example

Start with the clean case. Priya, a 34-year-old resident salaried professional in Pune, has a gross total income of Rs 12,75,000 in FY 2025-26. After the new-regime standard deduction of Rs 75,000, her total income is exactly Rs 12,00,000. The new-regime slabs for FY 2025-26 are 0% up to Rs 4,00,000, 5% from Rs 4,00,000 to Rs 8,00,000, and 10% from Rs 8,00,000 to Rs 12,00,000.

Her tax on total income works out to Rs 20,000 (5% of Rs 4,00,000) plus Rs 40,000 (10% of Rs 4,00,000), a total of Rs 60,000. Section 87A then delivers a rebate of Rs 60,000, wiping the liability to nil. Priya pays zero tax and zero cess on a Rs 12,75,000 salary, the headline promise of Budget 2025.

Now the trap. Suppose Priya's total income is Rs 12,10,000 instead, Rs 10,000 over the line. Because total income exceeds Rs 12,00,000, the Section 87A rebate is not available at all, and the raw slab tax would be Rs 61,500 (Rs 60,000 plus 15% of Rs 10,000). Adding 4% cess gives Rs 63,960 on income that is only Rs 10,000 higher than a nil-tax figure. This absurdity is exactly what marginal relief exists to fix.

Marginal relief caps the tax at the amount by which total income exceeds Rs 12,00,000. So Priya's tax cannot be more than Rs 10,000, plus 4% cess of Rs 400, a total of Rs 10,400. The relief itself is Rs 51,500, the difference between the raw Rs 61,500 and the capped Rs 10,000. The table below tracks how relief tapers as income climbs.

Marginal relief runs out at a total income of about Rs 12,70,588, where the slab tax of Rs 70,588 equals the excess over Rs 12,00,000. Beyond that point the ordinary slab tax is lower than the excess, so relief drops to nil and normal computation resumes, as the Rs 13,00,000 row shows. To test your own figure, run it through the new regime income tax calculator, which applies both the rebate and marginal relief automatically.

Common Mistakes

The commonest error seen in Section 143(1) processing is claiming the Rs 60,000 rebate against income taxed at special rates. A taxpayer with Rs 11,50,000 of salary and Rs 1,00,000 of equity long-term capital gains often assumes total income of Rs 12,50,000 still gets some rebate, but the Rs 1,00,000 LTCG is taxed separately at 12.5% under Section 112A and never qualifies for Section 87A. The rebate applies only to the Rs 11,50,000 slab-taxed portion.

A second recurring mistake is claiming Rs 60,000 while filing under the old regime. The Rs 60,000 ceiling and the Rs 12,00,000 threshold belong exclusively to the new regime under Section 115BAC(1A); an old-regime filer is limited to Rs 12,500 up to Rs 5,00,000. Since the new regime is the default from FY 2023-24, taxpayers who actively opt into the old regime for higher tax deductions sometimes forget the rebate shrinks back to Rs 12,500.

Third, non-residents wrongly claim the rebate. Section 87A opens with the words "an assessee, being an individual resident in India", so a non-resident Indian filing on Indian-source income of Rs 8,00,000 gets no rebate at all, and the tax computed on the slab is payable in full plus 4% cess. Confirm your residential status under Section 6 before you tick the rebate box.

Fourth, taxpayers ignore marginal relief and either overpay or file a return that mismatches the portal's own computation, triggering a demand. If your total income is Rs 12,40,000, the correct tax is Rs 40,000 plus cess, not the raw slab figure of Rs 66,000; failing to claim relief means overpaying Rs 26,000. If a demand does surface, our guide on responding to a Section 245 refund-adjustment intimation explains the next steps.

FAQ

Is the Section 87A rebate of Rs 60,000 available in both tax regimes for FY 2025-26?

No. The Rs 60,000 rebate up to Rs 12,00,000 is exclusive to the new regime under Section 115BAC(1A). Under the old regime the rebate stays at a maximum of Rs 12,500 for total income up to Rs 5,00,000, a limit unchanged since FY 2019-20 per the Income Tax Department.

What total income makes me completely tax-free under the new regime?

A resident individual with total income up to Rs 12,00,000 pays zero tax after the Rs 60,000 rebate. For the salaried, adding the Rs 75,000 standard deduction lifts the break-even gross salary to Rs 12,75,000 in FY 2025-26.

How does marginal relief work if my income is just above Rs 12,00,000?

Marginal relief caps your tax at the amount by which total income exceeds Rs 12,00,000. At a total income of Rs 12,10,000, tax is capped at Rs 10,000 plus 4% cess of Rs 400, instead of the raw slab tax of Rs 61,500. Relief tapers to nil at roughly Rs 12,70,588.

Can a non-resident claim the Section 87A rebate?

No. Section 87A is restricted to a resident individual. A non-resident, an HUF, a firm or a company cannot claim it, regardless of income level, as clarified on the Income Tax Department portal.

Does the rebate apply to long-term capital gains?

No. Income taxed at special rates, such as equity LTCG charged at 12.5% under Section 112A, is excluded from the Section 87A rebate. Only income taxed at normal slab rates counts toward the Rs 60,000 rebate.

Do I still need to file a return if my tax is nil after the rebate?

Yes, if your gross total income before deductions exceeds the basic exemption limit of Rs 4,00,000 in the new regime, filing is mandatory even when the rebate reduces tax to zero. Remember to e-verify within 30 days, as explained in our guide on the 30-day e-verification deadline.

Where can I confirm these figures officially?

The Income Tax Department publishes the FY 2025-26 rebate rules in its FAQ at incometax.gov.in, and the statutory text of Section 87A is available on indiacode.nic.in. Always cross-check the current year's threshold before filing, since rebate limits are revised by the annual Finance Act.