Income Tax · Rebate
Income Tax Rebate Under Section 87a (India, 2026)
The section 87A rebate is the single reason so many Indians with modest incomes pay no income tax at all. It is not a deduction you invest for; it is a rebate the law gives small taxpayers to cancel their tax once their income is below a limit. This guide explains how the rebate works, the very different limits under the new and old regimes, and the marginal relief that stops a small rise in income from causing a large jump in tax.
- What it is: a rebate that cuts your tax directly, for resident individuals below an income limit.
- New regime limit (FY 2025-26): total income up to Rs 12,00,000 ends in nil tax.
- Old regime limit: total income up to Rs 5,00,000, with a rebate up to Rs 12,500.
- Salaried bonus: the standard deduction can push the nil-tax salary to around Rs 12,75,000 in the new regime.
- Marginal relief: softens the jump for incomes slightly above the limit.
- Not for everyone: non-residents, companies and firms cannot claim it.
01What the section 87A rebate is
Section 87A gives a rebate to a resident individual whose total income is below a set limit. A rebate is a direct cut from the tax you owe, not from your income. So the slabs are first used to work out your tax, and then the 87A rebate removes that tax up to a ceiling.
Two things are worth fixing in your mind:
- It is only for a resident individual. A non-resident, a company, a firm or an HUF cannot claim it.
- It is applied after your tax is computed on the slabs, and before the 4% health and education cess is added.
The limit and the maximum rebate are different under the new regime and the old regime, which is where most confusion starts.
02The limits for FY 2025-26
For the financial year 2025-26 (assessment year 2026-27), the rebate works like this:
| Regime | Total income limit for full rebate | Effect |
|---|---|---|
| New regime (default) | Up to Rs 12,00,000 | Tax on that income is fully cancelled |
| Old regime | Up to Rs 5,00,000 | Rebate up to Rs 12,500 cancels the tax |
So the new regime is far more generous on the rebate. The old regime keeps the older Rs 5,00,000 limit, where the rebate is capped at Rs 12,500. If your total income crosses the limit for your regime, the rebate is not available, except for the marginal relief described below.
03Why income up to Rs 12 lakh can be tax free
Under the new regime for FY 2025-26, a resident individual with total income up to Rs 12,00,000 ends up paying no tax, because the section 87A rebate cancels the tax the slabs produce on that income.
For a salaried person, there is more good news. A standard deduction is allowed from salary before the slabs apply. With that deduction added on top, a salaried person earning up to around Rs 12,75,000 of salary can still land at nil tax. For the detail of that deduction, see the standard deduction under section 16(ia).
Note what "total income" means here: it is your income after the deductions you are allowed, not your gross salary. In the new regime most of the old deductions are switched off, so for many people total income is close to gross salary minus the standard deduction.
04Marginal relief just above the limit
Without a safeguard, a person at exactly the limit would pay nil, while a person a rupee above would suddenly pay a large tax. Marginal relief fixes this.
Marginal relief means that if your income is a little over the rebate limit, the extra tax you pay cannot be more than the extra income over the limit. In plain terms, your tax is limited so that earning a little more never leaves you worse off than someone sitting right at the limit.
Rebate vs marginal relief
The section 87A rebate itself stops once you cross the limit. Marginal relief is a separate cushion that only softens the jump for incomes slightly above the limit. They are not the same thing, and marginal relief does not make your income tax free again.
05What the rebate does not cover
The 87A rebate is not unlimited, and it does not apply to every kind of tax.
- Long-term capital gains on listed shares and equity funds taxed at the special rate are, in general, kept outside the rebate. The rebate mainly covers tax on normal income.
- The rebate is capped at the maximum amount notified for your regime; it cannot exceed your actual tax.
- Cess is added after the rebate, so if any tax survives the rebate, 4% cess applies on that remaining tax.
If part of your income is from capital gains, the rebate maths needs care, and the section references may read differently under the new Act. To understand a common deduction that reduces total income in the old regime, see section 80C of the Income-tax Act.
Section references here follow the Income-tax Act. The Income-tax Act, 2025 is set to replace the 1961 Act, so confirm the section number and the assessment year before you rely on it.
06How Claw Tax helps
Claw Tax and Accounts is an online tax, GST and accounting service for India that connects you with a verified chartered accountant at a fixed, published price, with a Claw reviewer checking every filing before it is submitted.
Claiming the 87A rebate on a simple salary is automatic on the income tax portal, and for a straightforward return you can file it yourself for free. It gets harder when you have capital gains, more than one income source, or you are not sure which regime leaves you at nil tax. Claw Tax is for when you want a verified chartered accountant to run both regimes on your real numbers and file the one that costs you less.
You pick an ITR service at a fixed, published price (salaried ITR filing starts from Rs 499, see the page), a verified CA prepares the return and applies the rebate correctly, a Claw reviewer checks it before submission, and you get reminders before the next due date. You can see the fixed prices and start at clawlaw.in/tax.
This is general information, not tax advice; a verified CA handles the specifics of your case.
07Frequently asked questions
Who can claim the section 87A rebate?
Only a resident individual whose total income is within the limit for the regime they use. Non-residents, companies, firms and HUFs cannot claim it. The rebate is applied to the tax computed on the slabs, before the 4% cess is added.
Is income up to Rs 12 lakh really tax free for FY 2025-26?
In the new regime, yes. A resident individual with total income up to Rs 12,00,000 pays no tax because the section 87A rebate cancels the tax on that income. A salaried person also gets the standard deduction on top, so the effective nil-tax salary is around Rs 12,75,000. Confirm the limit on incometax.gov.in before relying on it.
What is the rebate limit in the old regime?
In the old regime the rebate limit stays at total income up to Rs 5,00,000, with a maximum rebate of around Rs 12,500. This is much lower than the new regime limit, which is one reason the new regime suits people who do not claim many deductions.
What happens if my income is just above the limit?
Marginal relief applies. It limits the extra tax so that it is not more than the extra income over the limit. This stops a small rise in income from triggering a large tax bill. The rebate itself does not apply once you cross the limit; marginal relief only cushions the jump.
Does the rebate cover tax on capital gains?
In general the rebate covers tax on normal income, and special-rate long-term capital gains on listed shares and equity funds are usually kept outside it. If part of your income is capital gains, the rebate maths needs care. Confirm the treatment for the assessment year you are filing.
Do I have to apply for the rebate separately?
No. When you file your return correctly, the rebate is worked out automatically from your total income and regime. You do not file a separate form for it. Just make sure your income figure and regime choice are entered correctly, since the rebate depends on both.