Section 87A Rebate

Under the new regime for FY 2025-26, Section 87A gives a rebate of up to Rs 60,000 to resident individuals whose total income is up to Rs 12 lakh. The rebate equals the actual tax payable on slab income up to that threshold, so effectively, no income tax up to Rs 12 lakh of normal income. Add the Rs 75,000 standard deduction for salaried/pensioners and the breakeven gross salary becomes Rs 12.75 lakh. Marginal relief applies just above Rs 12 lakh to ensure the additional tax doesn't exceed the additional income. Capital gains taxed at special rates under 111A, 112 and 112A don't qualify for this rebate.

For AY 2026-27 (FY 2025-26), under the new regime the threshold is total income up to Rs 12 lakh, with rebate up to Rs 60,000. Under the old regime, the threshold remains the older Rs 5 lakh, with rebate up to Rs 12,500. So old-regime opters with taxable income above Rs 5 lakh lose the rebate entirely, while new-regime opters enjoy a much more generous cushion. Total income here means income computed under all heads, after deductions and after setting off losses, but before adding cess. Capital gains taxable under special rates are excluded from the rebate-eligible income, as clarified by the Finance Act.

This area saw legal back-and-forth recently. Section 87A rebate is generally available only on tax computed at slab rates, not on tax under special-rate sections like 111A (STCG on equity), 112 (LTCG other) and 112A (LTCG on equity). The Finance Act amendments and CBDT clarifications have now explicitly excluded capital gains under these special-rate sections from the 87A rebate base. So if your slab income is Rs 6 lakh and you have Rs 3 lakh of LTCG on equity, the rebate cushions only the slab tax; LTCG continues to attract 12.5% above the Rs 1.25 lakh exemption. Clients often miss this nuance and over-estimate their relief.

No. Section 87A rebate is available only to resident individuals. Non-residents (NRIs and foreign citizens) cannot claim the rebate, regardless of how low their Indian income is. This is one of several provisions where residential status fundamentally changes outcomes. NRIs are also denied basic exemption against special-rate capital gains income, so they often pay a relatively higher effective tax rate on small Indian incomes. HUFs can claim 87A on slab tax (subject to other conditions), but firms, LLPs and companies cannot. Always verify residential status correctly using the day-count tests in Section 6 before applying the rebate in your computation.

Marginal relief steps in to prevent a cliff effect. Under the new regime, if total income is just above Rs 12 lakh, the additional tax payable cannot exceed the additional income above Rs 12 lakh. So at Rs 12,10,000 income, normal tax computation might give Rs 61,500, but marginal relief caps the tax at the incremental Rs 10,000 above Rs 12 lakh, plus cess. Without this relief, earning Rs 1 extra above Rs 12 lakh would have cost Rs 60,000 in tax, an absurd outcome. The relief gradually phases out as income rises, until normal slab tax becomes lower than the marginal-relief cap, around Rs 12.75 lakh.

Yes. The Section 87A rebate is applied on income tax computed at slab rates before adding the 4% health and education cess. Sequence of computation: compute total tax at slab rates → reduce by 87A rebate (if eligible) → add 4% cess on the post-rebate amount → arrive at total tax payable. Surcharge, where applicable, comes between rebate and cess. So if slab tax is Rs 60,000, rebate Rs 60,000 wipes it out entirely, cess on zero is zero, total tax payable is nil. Many DIY filers apply rebate after cess and overpay by a small margin; the portal generally computes correctly if numbers are entered cleanly.

Yes, senior citizens (60-79) and super seniors (80+) can claim the Section 87A rebate exactly like other resident individuals, subject to the same total income thresholds: Rs 12 lakh under the new regime (rebate up to Rs 60,000) or Rs 5 lakh under the old regime (rebate up to Rs 12,500). The age-related higher basic exemption under the old regime (Rs 3 lakh for seniors, Rs 5 lakh for super seniors) operates separately and reduces taxable income before the 87A test. Under the new regime, basic exemption is the same Rs 4 lakh for all ages. Many senior pensioners pay zero tax up to Rs 12.75 lakh effectively.