What is Section 87A Tax Rebate?
taxDefinition
Section 87A of the Income Tax Act provides a full tax rebate to individual taxpayers whose net taxable income does not exceed ₹5 lakh (old regime) or ₹12 lakh (new regime). This means if your taxable income falls within these limits, your final income tax liability becomes zero — even if your income falls in a taxable slab.
Detailed Explanation
Section 87A was introduced in Finance Act 2013 to provide tax relief to low and middle-income earners. Under the new tax regime the rebate limit was raised to ₹12 lakh by Budget 2025, which makes the new regime effectively tax-free for a salaried person earning up to ₹12.75 lakh (₹12L taxable + ₹75,000 standard deduction).
The rebate under 87A is: up to ₹12,500 for old regime (income ≤ ₹5L), and up to ₹60,000 for new regime (income ≤ ₹12L). If your calculated tax is ₹40,000 and you qualify for the rebate, your tax payable becomes zero. Just above ₹12 lakh, marginal relief ensures your tax never exceeds the income you earn over ₹12 lakh.
Note: under the new regime, the rebate is not available against special-rate capital gains such as short-term gains on equity (Section 111A) or long-term gains under Sections 112 and 112A, which are taxed at their own rates.
How the rebate works, with numbers
Under the new regime, taxable income of ₹12,00,000 produces slab tax of ₹60,000 (₹20,000 on ₹4L to ₹8L plus ₹40,000 on ₹8L to ₹12L). The Section 87A rebate of up to ₹60,000 wipes that out, so you pay nothing. Add the ₹75,000 standard deduction and a salary of ₹12.75 lakh is tax-free.
Under the old regime the limit is ₹5 lakh of taxable income with a rebate of up to ₹12,500. At ₹5,00,000 the slab tax is exactly ₹12,500, which the rebate cancels.
Marginal relief just above the limit
Without a safeguard, earning ₹1 more than ₹12 lakh would suddenly cost you ₹60,000 of tax. Marginal relief stops that: your tax cannot exceed the amount by which your income goes over ₹12 lakh. At ₹12,10,000 taxable income, slab tax is ₹61,500, but relief caps it at ₹10,000 (plus cess). The effect fades as income rises.
What the rebate does not cover
Section 87A reduces tax on normal slab income. Under the new regime it is not available against special-rate capital gains such as short-term gains on listed equity (Section 111A) or long-term gains under Sections 112 and 112A, which are taxed at their own rates. It is available only to resident individuals, not to NRIs, HUFs or companies.
It is also a rebate on tax, not a deduction from income, which is why it is mentioned after the slab calculation. Use the Income Tax Calculator to see it applied automatically.
🏛️ Income Tax Calculator
Compare Old vs New income tax regime FY 2026-27