Section 87A Rebate FY 2025-26: ₹60,000 Rebate up to ₹12 Lakh and Marginal Relief Explained

How it works

Section 87A of the Income-tax Act 1961 is a rebate, not a deduction. A deduction reduces your income; a rebate reduces the tax computed on it. You first work out tax at slab rates on your total income, then subtract the rebate if your total income is within the threshold. The rebate is the lower of the tax computed and the ceiling.

Under the new regime for FY 2025-26, the threshold is ₹12,00,000 of total income and the ceiling is ₹60,000. Tax on exactly ₹12 lakh at the new slabs is ₹60,000 (₹20,000 on 4 to 8 lakh, ₹40,000 on 8 to 12 lakh), so the rebate wipes it out. A salaried person gets there at ₹12,75,000 gross because of the ₹75,000 standard deduction. Under the old regime the threshold stays at ₹5,00,000 and the ceiling at ₹12,500.

The rebate is all or nothing at the threshold. Earn ₹1 above ₹12 lakh and, without a safeguard, you would owe the full ₹60,000 plus. The new regime therefore includes marginal relief: where income exceeds ₹12 lakh, the tax payable cannot be more than the excess of income over ₹12 lakh. Cess is then added to whichever figure applies. The old regime has no marginal relief.

The rebate applies to tax on ordinary income at slab rates. It does not reduce tax on long-term capital gains under section 112A on listed shares and equity funds, and by the department's position it also excludes short-term gains under section 111A in the new regime. So an income of ₹11 lakh salary plus ₹2 lakh of equity LTCG is not tax-free.

For a salaried person the arithmetic is simple. Gross salary of ₹12,75,000 less the ₹75,000 standard deduction gives ₹12,00,000, which is exactly the threshold, so tax is nil. Add an employer NPS contribution under section 80CCD(2) and the zero-tax salary rises further, because that is the one deduction the new regime still allows. Pensioners get the same ₹75,000 standard deduction on pension. Under the old regime the sums are smaller but the deductions are wider: a gross salary of ₹5,50,000 reaches ₹5,00,000 after the ₹50,000 standard deduction, and each rupee of 80C, 80D or HRA exemption raises the zero-tax salary by the same rupee, which is why old-regime filers just above ₹5 lakh chase deductions in March.

What to do next

If your total income is close to ₹12 lakh under the new regime, check whether any income you have missed, such as savings interest or a small dividend, pushes you over. If it does, marginal relief limits the damage, but an employer NPS contribution under section 80CCD(2) can pull you back under the line. If you are an NRI, do not claim the rebate; the return utility allows it in error and the intimation will reverse it with interest. Anyone with equity LTCG above ₹1.25 lakh should compute the tax on that slice separately, because the rebate will not cover it.