Section 87A rebate FY 2025-26: Rs 60,000 in new regime up to Rs 12 lakh, marginal relief, and the old regime Rs 12,500 split

Section 87A of the Income-tax Act 1961 is the single largest reason a salaried professional in India can land at zero tax for FY 2025-26 (assessment year 2026-27). After the Finance Act 2025, the rebate in the new regime climbs to Rs 60,000 for resident individuals with total income up to Rs 12,00,000, and combined with the Rs 75,000 standard deduction it pushes the zero-tax threshold for salaried filers to Rs 12,75,000. The old regime cap, untouched since FY 2019-20, stays at Rs 12,500 for total income up to Rs 5,00,000. This morning brief decodes the statute, walks through marginal relief, and flags the three traps that are already triggering 143(1) intimations for AY 2025-26 filers.

The rebate sits in Chapter VIII of the Act and applies to tax payable, not to income, computed before the 4% health and education cess. For a resident salaried filer waiting on utility updates since April 2026, getting Section 87A right is the difference between an instant refund and an October demand notice.

What the Section Says

Section 87A, as amended by the Finance (No. 2) Act 2024 and the Finance Act 2025 (statutory text accessible at indiacode.nic.in), allows a "resident individual" whose total income does not exceed the prescribed ceiling to claim a deduction from the income-tax payable. The eligibility cut-off and rebate quantum vary by regime, and the table below crystallises the FY 2025-26 position before we step into the worked examples.

Three statutory contours are non-negotiable. First, the rebate is restricted to "resident" individuals as defined under Section 6, so non-resident Indians and resident-but-not-ordinarily-resident filers cannot claim it; HUFs, firms, and companies are also outside the net. Second, the rebate cannot exceed the tax payable before cess, so an income at the threshold produces a net liability of zero, not a refund. Third, the new regime under Section 115BAC became the default from FY 2023-24, meaning a salaried filer who takes no action automatically falls inside the Rs 60,000 rebate bracket; the older Rs 12,500 cap applies only if the taxpayer files Form 10-IEA on or before the Section 139(1) due date.

The Finance Act 2025 also legislated marginal relief inside Section 87A itself for the new regime, removing the ambiguity that had dogged AY 2025-26 filings. If total income marginally exceeds Rs 12,00,000, the rebate is enlarged so that incremental tax does not exceed the incremental income above Rs 12,00,000. This relief is available only in the new regime; the old regime still has no marginal relief at the Rs 5,00,000 frontier, which is why a tiny extra rupee of interest income in the old regime can vault a filer into a Rs 13,000-plus liability.

Worked Example

Consider Ananya, a 31-year-old product manager in Bengaluru with a CTC of Rs 14,40,000 for FY 2025-26. Her Form 16 shows gross salary of Rs 13,50,000 after subtracting her employer's NPS contribution under Section 80CCD(2). She has interest from a savings account of Rs 8,000 and no capital gains. We will compare her position using the FY 2025-26 Section 115BAC slabs: nil up to Rs 4,00,000; 5% on Rs 4,00,001-Rs 8,00,000; 10% on Rs 8,00,001-Rs 12,00,000; 15% on Rs 12,00,001-Rs 16,00,000; 20% on Rs 16,00,001-Rs 20,00,000; 25% on Rs 20,00,001-Rs 24,00,000; and 30% above Rs 24,00,000.

In the new regime, Ananya subtracts the Rs 75,000 standard deduction under Section 16(ia), netting a total income of Rs 12,83,000 (Rs 13,50,000 + Rs 8,000 - Rs 75,000). Her tax before rebate is Rs 72,450, computed as nil on the first Rs 4,00,000; Rs 20,000 on the Rs 4-8 lakh slab; Rs 40,000 on the Rs 8-12 lakh slab; and Rs 12,450 (15% of Rs 83,000) on the Rs 12 lakh-Rs 12.83 lakh portion. Because her total income exceeds Rs 12,00,000 by Rs 83,000, she fails both the flat Rs 60,000 rebate test and the marginal-relief test (her computed tax of Rs 72,450 is lower than the formula's cap); she therefore pays Rs 72,450 plus 4% cess of Rs 2,898, totalling Rs 75,348. The break-even where marginal relief stops biting sits at roughly Rs 12,70,588, so Ananya is just past it.

Now contrast Ananya's brother Rohan, whose total income lands at exactly Rs 12,00,000 after the standard deduction. His slab-wise tax is Rs 60,000 (Rs 20,000 + Rs 40,000). Section 87A wipes out the entire Rs 60,000, and cess on zero is zero. Push Rohan's salary up by Rs 10,000 to a taxable Rs 12,10,000 and the picture changes: tax becomes Rs 61,500 (Rs 60,000 + 15% of Rs 10,000), the excess over Rs 12 lakh is Rs 10,000, and marginal relief restricts his tax to Rs 10,000 plus Rs 400 cess. Validate any of these numbers using the income-tax calculator, and run a side-by-side using the old vs new regime comparator before locking your declaration with payroll.

In the old regime, Ananya would forgo the Rs 75,000 new-regime standard deduction (old regime allows Rs 50,000). Even after stuffing the 80C basket to Rs 1.5 lakh and 80D health cover of Rs 25,000, her taxable income would not collapse below Rs 5,00,000, so the Rs 12,500 rebate stays out of reach. The break-even where old beats new for a salaried filer of her composition sits well above Rs 8,00,000 of deductions, a level most non-housing-loan filers never reach.

Common Mistakes

Three rebate-related errors dominate the Centralised Processing Centre's intimation queue, and each carries a measurable rupee cost.

The first is claiming Section 87A against tax computed on special-rate income. Long-term capital gains taxed at 12.5% under Section 112A, short-term capital gains taxed at 20% under Section 111A, lottery and winnings taxed at 30% under Section 115BB, and online gaming income taxed at 30% under Section 115BBJ are all carved out from the rebate by the Finance Act 2023 clarification, which the CBDT has reaffirmed for FY 2025-26. A salaried filer with Rs 9,00,000 of salary and Rs 2,00,000 of LTCG on listed equity above the Rs 1,25,000 exemption cannot apply 87A to the equity component, even though aggregate income is below Rs 12 lakh. The portal will accept the return and the 143(1) intimation will then strip the rebate and raise a demand. Cross-check capital-gains numbers using the capital gains calculator.

The second is an NRI claiming the rebate. The statute unambiguously restricts Section 87A to "resident" individuals, and tribunals have consistently held that rebate is unavailable even where the NRI's India-source income falls inside the Rs 5 lakh or Rs 12 lakh ceiling. If you have moved abroad mid-year, run the Section 6 residency test before assuming rebate.

The third is the surcharge muddle on high-income filers. Section 87A is irrelevant once total income crosses Rs 12 lakh by more than the marginal relief band, but a parallel error occurs at the surcharge frontiers. The new regime caps surcharge at 25%, and the highest surcharge slab kicks in only above Rs 2 crore. Filers continuing to apply 37% in the new regime overpay by lakhs; cross-verify using the new regime income-tax calculator and read the recent ITR-U updated return note if you need to fix an AY 2024-25 misapplication within the 48-month window.

A fourth, more subtle error: HUF karta returns claiming 87A. The section names "individual" alone; HUF cannot claim, period. The rebate is also computed before the 4% cess under Section 2(11) of the Finance Act 2025, so cess is levied only on the post-rebate tax of zero, not on the pre-rebate Rs 60,000.

FAQ

Is the Section 87A rebate of Rs 60,000 available in the old regime for FY 2025-26?

No. The Rs 60,000 ceiling applies only inside the default new regime under Section 115BAC. If you have validly filed Form 10-IEA to opt out and remain in the old regime, your Section 87A rebate is capped at Rs 12,500 and is available only if your total income does not exceed Rs 5,00,000. Confirm slab applicability via incometax.gov.in.

How is marginal relief computed if my new-regime income is Rs 12,50,000?

Tax before relief is Rs 67,500 (Rs 60,000 plus 15% on Rs 50,000). The excess above Rs 12,00,000 is Rs 50,000. Because computed tax exceeds the excess, marginal relief reduces tax payable to Rs 50,000, on which 4% cess of Rs 2,000 is added, yielding Rs 52,000. Marginal relief in the new regime stops being beneficial at roughly Rs 12,70,588 of total income for FY 2025-26.

Can I claim Section 87A against tax on long-term capital gains from equity?

No. Section 87A is not available against tax computed on LTCG taxed under Section 112A, STCG under Section 111A, lottery winnings under Section 115BB, or online gaming under Section 115BBJ. This carve-out, introduced by the Finance Act 2023, was reaffirmed by the CBDT for FY 2025-26. Plan equity exits using the Section 54EC bonds note if you also have property gains.

Does the Rs 75,000 standard deduction stack on top of the Rs 12 lakh rebate ceiling?

Yes, for salaried and pension income only. The Rs 75,000 deduction under Section 16(ia) in the new regime reduces your gross salary before computing total income for the Section 87A ceiling. A salaried filer with gross salary of Rs 12,75,000 lands at a taxable income of Rs 12,00,000, qualifies for the full Rs 60,000 rebate, and pays zero tax.

Are senior citizens entitled to a higher Section 87A rebate?

No. Section 87A does not differentiate by age. However, in the old regime, a senior citizen (aged 60-79) has a basic exemption of Rs 3,00,000 and a super-senior (80+) has Rs 5,00,000, so the rebate window of Rs 5,00,000 total income still corresponds to actual rebate amounts of Rs 10,000 and zero respectively. In the new regime, age-based exemptions do not apply.

Can a Hindu Undivided Family or a firm claim Section 87A?

No. The rebate is explicitly reserved for individuals who are resident in India under Section 6. HUFs, partnership firms, LLPs, AOPs, BOIs, and companies are all ineligible regardless of their total income.

What happens if I forget to claim Section 87A in my originally filed ITR?

You can file a revised return under Section 139(5) at any time before three months prior to the end of the assessment year (31 December 2026 for AY 2026-27) or before completion of assessment, whichever is earlier. If the assessment has already been completed, the ITR-U updated return route is generally not available to claim a rebate that reduces tax, so revise promptly. The TDS calculator helps reconcile expected refund.