Section 87A Rebate: Pay Zero Tax up to ₹12 Lakh

Section 87A Rebate: Pay Zero Tax up to ₹12 Lakh

The Section 87A rebate is the reason crores of Indians pay no income tax at all — and after the 2025 Budget, it's more generous than ever. Under the new tax regime, it makes income up to ₹12 lakh completely tax-free. This guide explains what the rebate is, how much you get, who qualifies, and two things people often miss — marginal relief and the capital-gains catch — for FY 2025-26 (AY 2026-27).

What Is the Section 87A Rebate?

Section 87A gives resident individuals a direct rebate on their income tax. Think of it as a discount applied after your tax is calculated: if your taxable income is within the limit, the rebate wipes out your tax entirely, so you pay zero. It's not a deduction from income — it's a reduction in the tax itself.

How Much Is the Rebate?

The rebate amount and the income limit depend on which tax regime you choose:

Tax regime	Maximum rebate	Income for zero tax	Salaried (with standard deduction)
New regime	₹60,000	up to ₹12 lakh	up to ₹12.75 lakh
Old regime	₹12,500	up to ₹5 lakh	up to ₹5.5 lakh

The new regime is dramatically more generous — the rebate jumped from ₹25,000 to ₹60,000 in Budget 2025, lifting the zero-tax ceiling from ₹7 lakh to ₹12 lakh. For salaried people, the ₹75,000 standard deduction pushes that to a salary of ₹12.75 lakh with no tax. In the old regime, the rebate is still just ₹12,500, covering income up to ₹5 lakh.

Who Can Claim the 87A Rebate?

• You must be a resident individual — NRIs cannot claim it.
• HUFs, firms and companies are not eligible.
• Your total taxable income (after deductions) must be within the limit — ₹12 lakh under the new regime or ₹5 lakh under the old.

The rebate is applied automatically when you file, and you can estimate it with our Income Tax Calculator.

Marginal Relief: For Income Just Above ₹12 Lakh

What if your income is just a little over the limit — say ₹12.1 lakh? Without help, you'd lose the entire rebate and face a big tax jump. Marginal relief prevents exactly that.

The rule: if your income marginally crosses ₹12 lakh, your tax cannot be more than the amount by which your income exceeds ₹12 lakh.

Example: on a taxable income of ₹12.1 lakh under the new regime, the normal tax works out to about ₹61,500. But your income is only ₹10,000 above ₹12 lakh — so marginal relief caps your tax at ₹10,000 (plus cess), instead of ₹61,500. The relief saves you over ₹50,000 and fades out gradually as income rises further.

The Capital Gains Catch

Here's the trap that surprises many investors: the 87A rebate does not apply to capital gains taxed at special rates.

• Tax on short-term capital gains on equity (Section 111A, 20%) and long-term capital gains on equity (Section 112A, 12.5%) must be paid separately — the rebate can't reduce it.
• Under the new regime, these special-rate gains are also excluded when checking whether your income is within the ₹12 lakh limit.

So if you have ₹11 lakh of salary and ₹2 lakh of long-term equity gains, the rebate still covers your salary tax, but you'll pay 12.5% on the equity gains above the ₹1.25 lakh exemption. (Gains from other assets like property or debt funds, taxed at slab rates, are not "special rate" and can be covered.) See our full guide to capital gains tax on shares and mutual funds.

Old vs New: Which Gives a Bigger Rebate?

For almost everyone earning up to ₹12 lakh, the new regime's 87A rebate is far more valuable — it makes that entire income tax-free, while the old regime stops at ₹5 lakh. This is a big reason the new regime now wins for most people. Before you file, compare both with our guide to the old vs new tax regime, then pick the right ITR form for your situation.

Frequently Asked Questions

What is the income limit for the Section 87A rebate?

For FY 2025-26, the limit is ₹12 lakh of taxable income under the new tax regime and ₹5 lakh under the old regime. Stay within the limit and your tax becomes zero.

Is the 87A rebate ₹12,500 or ₹60,000?

Both — it depends on the regime. The rebate is up to ₹60,000 under the new regime (income up to ₹12 lakh) and up to ₹12,500 under the old regime (income up to ₹5 lakh).

Can I claim the 87A rebate on capital gains?

No — not on capital gains taxed at special rates, such as equity STCG (Section 111A) or equity LTCG (Section 112A). That tax is paid separately. The rebate applies only to tax on your normal slab-rate income.

What is marginal relief under Section 87A?

If your income is just above ₹12 lakh (new regime), marginal relief limits your tax to the amount by which your income exceeds ₹12 lakh — so a small increase in income doesn't trigger a disproportionate tax bill.

Can NRIs claim the Section 87A rebate?

No. The 87A rebate is available only to resident individuals. Non-residents, HUFs, firms and companies cannot claim it.

Disclaimer: This article is for educational purposes only and reflects rules for FY 2025-26 (AY 2026-27). Tax laws change and individual situations vary. Please verify the latest rules on the official Income Tax Department website or consult a qualified tax advisor before making decisions.