Section 87A Rebate for AY 2026–27: Who Gets Zero Tax Up to ₹12 Lakh?
Section 87A rebate for AY 2026-27 explained: who gets zero tax up to 12 lakh, the ₹60,000 limit, marginal relief, exclusions and how to claim it.
Section 87A rebate is a reduction in income tax that the Income Tax Act, 1961 allows to a resident individual whose total income stays within a set limit, and for AY 2026-27 it brings the tax to nil for anyone with taxable income up to ₹12 lakh under the new regime. The rebate is capped at ₹60,000 in the new regime and at ₹12,500 in the old regime, where the income limit is only ₹5 lakh. Because the slab tax on exactly ₹12 lakh is ₹60,000, a resident individual gets zero tax up to 12 lakh of taxable income, and a salaried employee reaches that point at a gross salary of ₹12.75 lakh after the ₹75,000 standard deduction.
The benefit has limits that catch many filers: it excludes non-residents, HUFs and companies, and it does not reduce tax on capital gains taxed at special rates. This guide explains who qualifies, how marginal relief works above the limit, and how to claim the rebate correctly in your return.
What Is Section 87A Rebate and Who Gets Zero Tax Up to ₹12 Lakh?
What is Section 87A rebate? It is a tax rebate that reduces the income tax payable by a resident individual, and it applies after the tax on total income has been worked out at the normal slab rates. A resident individual with taxable income up to ₹12 lakh under the new regime gets zero tax up to 12 lakh, because the rebate of up to ₹60,000 matches the entire slab tax on that income.
The arithmetic is simple. In the new regime for AY 2026-27, the first ₹4 lakh of income is taxed at nil, the next ₹4 lakh at 5 per cent and the next ₹4 lakh at 10 per cent. A taxable income of ₹12 lakh therefore produces ₹20,000 plus ₹40,000, which is ₹60,000. The Section 87A rebate cancels exactly that amount, so no tax and no cess remain to pay. This is the 87A rebate for AY 2026-27 in its simplest form.
Under the Section 87A rebate in new regime, salaried employees, pensioners, freelancers, small traders and professionals all qualify, provided they are resident individuals and their income is taxed at normal slab rates. Taxpayers who want a second opinion on their slab tax before filing can use our income tax advisory support, and the table below shows who qualifies at a glance.
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| Taxpayer or income | Rebate position for AY 2026-27 | Result |
|---|---|---|
| Resident individual, new regime, taxable income up to ₹12 lakh | Up to ₹60,000 | Tax is nil |
| Resident individual, old regime, taxable income up to ₹5 lakh | Up to ₹12,500 | Tax is nil |
| Non-resident individual (NRI) | Not eligible | Slab tax applies |
| HUF, firm, LLP, company or trust | Not eligible | Slab or flat tax applies |
| Capital gains under Sections 111A, 112 and 112A | No rebate on this tax | Tax payable in full |
What Is the Section 87A Rebate Limit for AY 2026-27 in the New and Old Regime?
The Section 87A rebate limit for AY 2026-27 is ₹60,000 in the new regime for total income up to ₹12 lakh, and ₹12,500 in the old regime for total income up to ₹5 lakh. The 87A rebate for AY 2026-27 applies to income earned in FY 2025-26 and was set by the Finance Act, 2025.
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| Feature | New regime | Old regime |
|---|---|---|
| Total income limit | ₹12,00,000 | ₹5,00,000 |
| Maximum rebate | ₹60,000 | ₹12,500 |
| Marginal relief above the limit | Yes | No |
| Standard deduction for salary | ₹75,000 | ₹50,000 |
| Zero-tax gross salary | ₹12,75,000 | ₹5,50,000 |
The new regime slabs behind the ₹60,000 figure are nil up to ₹4 lakh, 5 per cent from ₹4 lakh to ₹8 lakh, 10 per cent from ₹8 lakh to ₹12 lakh, 15 per cent from ₹12 lakh to ₹16 lakh, 20 per cent from ₹16 lakh to ₹20 lakh, 25 per cent from ₹20 lakh to ₹24 lakh and 30 per cent above ₹24 lakh. The rebate cannot exceed the tax actually payable, so a taxpayer with taxable income of ₹10 lakh and tax of ₹40,000 receives a rebate of ₹40,000, not ₹60,000, which is how the 87A rebate for AY 2026-27 treats mid-income earners.
The Section 87A rebate in new regime is the default position, because the new regime applies automatically unless a taxpayer opts out. The Section 87A rebate old regime is far smaller and ends abruptly: at a total income of ₹5,00,001 the rebate disappears and the tax jumps to about ₹13,000 including cess. For a full comparison of the two regimes, read our guide on new regime versus old regime for AY 2026-27.
Who Is Eligible for Section 87A Rebate and Who Is Excluded?
Only an individual who is resident in India during the previous year is eligible for Section 87A rebate; non-resident Indians, HUFs, firms, LLPs, companies and trusts cannot claim it. Anyone asking who is eligible for Section 87A rebate should therefore check residential status before checking income.
Under Section 6 of the Income Tax Act, 1961, an individual is resident if present in India for 182 days or more in the previous year, or for 60 days or more in that year and 365 days or more in the four years before it, subject to the exceptions in that section. Age does not matter. A resident senior citizen or super senior citizen claims the rebate in the same way as any other resident individual.
The 87A rebate for NRI taxpayers is not available at any income level, so an NRI with Indian income of ₹10 lakh pays tax on the full slab computation. NRIs who file in India should read our NRI tax filing overview to see which reliefs apply to them instead.
The rebate also does not extend to a Hindu undivided family, even though a HUF is taxed like an individual in many respects. Partnership firms and companies pay tax at their own rates, and neither category has a rebate of this kind. Within the eligible group, the person must still stay within the income limit of their chosen regime. The 87A rebate for NRI and HUF taxpayers is therefore a common point of confusion on a first filing.
What Is Marginal Relief Above 12 Lakh and How Does It Work?
Marginal relief above 12 lakh keeps the extra tax from outrunning the extra income: the tax payable on income just over the limit can be at most the amount by which taxable income exceeds ₹12 lakh. Without it, earning ₹1 more than ₹12 lakh would bring the full slab tax of about ₹60,000.
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| Taxable income | Slab tax before relief | Tax after marginal relief | Tax with 4% cess |
|---|---|---|---|
| ₹12,00,000 | ₹60,000 | Nil | Nil |
| ₹12,10,000 | ₹61,500 | ₹10,000 | ₹10,400 |
| ₹12,30,000 | ₹64,500 | ₹30,000 | ₹31,200 |
| ₹12,50,000 | ₹67,500 | ₹50,000 | ₹52,000 |
| ₹12,80,000 | ₹72,000 | ₹72,000 (no relief) | ₹74,880 |
Relief works only while slab tax is higher than the excess income. Slab tax above ₹12 lakh equals ₹60,000 plus 15 per cent of the excess, so the two figures meet when the excess is about ₹70,588. Marginal relief therefore ends at a taxable income of roughly ₹12,70,588, which corresponds to a salary of about ₹13,45,588 after the ₹75,000 standard deduction.
Cess at 4 per cent is added after the relief is applied. This means a taxpayer inside the relief band keeps almost none of each extra rupee earned, which makes deductions and employer contributions especially valuable between ₹12 lakh and ₹12.7 lakh. The Section 87A rebate old regime has no marginal relief, so its ₹5 lakh limit works as a cliff.
Is Section 87A Rebate Available on Capital Gains and Other Special-Rate Income?
No. The Section 87A rebate does not reduce tax on short-term capital gains taxed under Section 111A or on long-term capital gains taxed under Sections 112 and 112A, so the 87A rebate on capital gains is nil even when total income is below ₹12 lakh. Capital gains therefore sit outside the Section 87A rebate in new regime and are taxed separately.
Consider a resident whose salary income leaves taxable income of ₹10 lakh, and who also earns ₹1 lakh of short-term capital gains on listed equity shares. The slab tax on ₹10 lakh is ₹40,000, and the rebate wipes it out. The ₹1 lakh of gains is taxed at 20 per cent under Section 111A, which is ₹20,000, and with cess the taxpayer pays ₹20,800 even though the salary tax is nil.
Investors who sell shares, mutual funds or property should map each gain to its tax section before they estimate any rebate. Our capital gain overview explains how each type of gain is taxed. Other income taxed at special rates, such as lottery winnings, generally follows the same rule, and the rebate stays limited to tax on normal slab income, which is why the 87A rebate on capital gains and lottery winnings is nil.
How Much Salary Is Tax-Free Under Section 87A Rebate for Salaried Employees?
A salaried employee in the new regime pays zero tax up to a gross salary of ₹12.75 lakh, because the ₹75,000 standard deduction brings taxable income down to ₹12 lakh and the Section 87A rebate then removes the tax. This is how the 87A rebate for salaried employees turns a headline limit of ₹12 lakh into ₹12.75 lakh of salary.
Other deductions that the new regime allows can lift the tax-free salary further. The main one is the employer's contribution to the National Pension System under Section 80CCD(2), which the new regime allows up to 14 per cent of basic salary plus dearness allowance. Family pension receives a standard deduction of ₹25,000. Deductions for PF, life insurance, HRA and Section 80C investments are not available in the new regime.
A salary of ₹12,90,000 leaves taxable income of ₹12,15,000. The slab tax is ₹62,250, marginal relief limits it to ₹15,000, and cess brings the payable amount to ₹15,600. Salaried taxpayers who want the full filing routine, including how the 87A rebate for salaried employees is computed in the return, can follow our ITR filing guide for salaried employees. Under the Section 87A rebate old regime, a salary of ₹5.5 lakh is the zero-tax point after the ₹50,000 standard deduction.
How to Claim 87A Rebate in ITR Step by Step for AY 2026-27?
How to claim 87A rebate in ITR comes down to selecting the right regime and reporting income correctly, because the ITR utility computes the rebate in the tax computation automatically. No separate form is required, and the six steps below keep the claim clean.
Confirm Your Residential Status.
Anyone checking who is eligible for Section 87A rebate must start here: count your days in India during FY 2025-26 and apply the tests in Section 6. If you are a non-resident, the 87A rebate for NRI filers is not available, and claiming it invites an adjustment.
Compute Total Income Under the New Regime.
Add salary, house property, business and other income, then subtract the standard deduction and other deductions that the new regime allows. The result must not exceed ₹12 lakh for the full rebate.
Separate Special-Rate Income.
List short-term and long-term capital gains taxed under Sections 111A, 112 and 112A apart from normal income. The 87A rebate on capital gains is nil, so the rebate applies only to the tax on the normal income.
Choose the Tax Regime in the ITR.
The new regime is the default for AY 2026-27. If you prefer the old regime, opt for it in the return, and note that the rebate then falls to ₹12,500 with a ₹5 lakh limit.
Check the Rebate Line in the Tax Computation.
Compare the rebate shown with the lower of your tax and ₹60,000. If your income is just above ₹12 lakh, confirm that marginal relief above 12 lakh has been applied.
Verify Your Data, File and E-Verify.
Match income details with Form 26AS and the Annual Information Statement, file the return and e-verify within 30 days. An unverified return is treated as not filed.
Taxpayers who prefer professional help can use our ITR filing services, which cover regime selection, capital gains reporting and e-verification.
If an intimation denies a rebate you believe you are entitled to, our page on the Section 143(1)(a) notice explains how to respond within the time allowed.
How Has Section 87A Rebate Evolved from 1961 to the Income-tax Act, 2025?
Section 87A rebate began in 2013 as a ₹2,000 relief for small taxpayers and has grown to ₹60,000 by AY 2026-27, moving from a token relief to a full tax exemption on incomes up to ₹12 lakh.
1991
No Rebate, Very High Rates
Before 1991, the Income Tax Act, 1961 had no rebate of this kind. Peak marginal rates crossed 90 per cent in the early 1970s, and relief for small taxpayers came mainly through exemption limits and the investment-linked rebate in Section 88.
Reforms and Simpler Slabs
After the 1991 reforms and the Chelliah Committee recommendations, the top rate fell to 40 per cent and the slab structure shrank to three rates by 1992-93, while PAN and electronic filing gradually moved returns online.
Section 87A Is Born and Grows
Section 87A was inserted by the Finance Act, 2013, with a rebate of ₹2,000 for total income up to ₹5 lakh from AY 2014-15. The rebate was later raised to ₹12,500 for AY 2020-21. The Finance Act, 2020 introduced the optional new regime under Section 115BAC, and the Finance Act, 2023 raised the new regime rebate to ₹25,000 for income up to ₹7 lakh and made that regime the default. The Finance Act, 2025 lifted it to ₹60,000 for income up to ₹12 lakh from AY 2026-27.
The Income-tax Act, 2025
The current framework changes again with the Income-tax Act, 2025, which takes effect from 1 April 2026. Section 156 of the Income-tax Act, 2025 carries the rebate forward for tax year 2026-27, while returns for AY 2026-27 remain under the 1961 Act, and Budget 2026 left the limits unchanged. Official utilities, forms and circulars are available on the Income Tax Department e-filing portal.
Frequently Asked Questions About Section 87A Rebate
What is the Section 87A rebate limit for AY 2026-27?
The Section 87A rebate limit for AY 2026-27 is ₹60,000 under the new regime when total income does not exceed ₹12 lakh, and ₹12,500 under the old regime when total income does not exceed ₹5 lakh. The rebate equals the lower of your tax payable or the cap, and it applies before cess. Only resident individuals can claim it. Because the slab tax on ₹12 lakh is exactly ₹60,000, the new regime rebate removes the entire tax at that income. For tax years beginning 1 April 2026, Section 156 of the Income-tax Act, 2025 carries the same limits.
Who gets zero tax up to 12 lakh in AY 2026-27?
A resident individual whose taxable income does not exceed ₹12 lakh under the new regime gets zero tax up to 12 lakh, because the rebate cancels the slab tax. A salaried employee reaches this point at a gross salary of ₹12.75 lakh after the ₹75,000 standard deduction. NRIs, HUFs, firms and companies do not qualify, and tax on capital gains taxed at special rates remains payable whatever the total income.
Is Section 87A rebate available for NRIs?
No. Section 87A allows the rebate only to an individual who is resident in India during the relevant previous year, so a non-resident cannot claim it at any income level. Residential status decides the question, not citizenship. Before filing, test your stay in India against the 182-day and 60-day conditions in Section 6 of the Income Tax Act, 1961, because a person who returned to India during the year can qualify as a resident and claim the rebate.
Can I claim Section 87A rebate if my income is slightly above ₹12 lakh?
Yes, through marginal relief rather than the full rebate. When taxable income exceeds ₹12 lakh by a small amount, your tax is limited to the excess over ₹12 lakh, so a taxable income of ₹12.1 lakh costs ₹10,000 plus cess instead of ₹61,500. Marginal relief applies until taxable income reaches about ₹12,70,588, after which normal slab tax applies. The old regime has no marginal relief, and its ₹5 lakh limit is a hard cut-off.
Is Section 87A rebate available on capital gains?
No. The Section 87A rebate does not reduce tax on short-term capital gains under Section 111A or on long-term capital gains under Sections 112 and 112A, because these gains are taxed at special rates. The rebate works only against tax on normal slab income. For example, a taxpayer with ₹10 lakh of salary income and ₹1 lakh of Section 111A gains pays nil on the salary but ₹20,800, including cess, on the gains.
How to claim 87A rebate in ITR for AY 2026-27?
You claim the rebate by filing the correct ITR form with accurate income details; no separate form is needed. Select the new regime, which is the default, or the old regime if you opt for it, and the utility computes the rebate in the tax computation. Check that the rebate line shows the lower of your tax or ₹60,000, confirm that special-rate income is reported separately, and e-verify the return within 30 days of filing.
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CA Nainit Savla is a Chartered Accountant practice with 15+ years of experience, serving individuals, NRIs, startups and businesses in Mumbai and Hyderabad with income tax, GST, audit and compliance services.
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