Section 87 of the Income-tax Act, 1961: Rebate Allowed in Computing Income-tax
Section 87 sets out the framework for allowing certain rebates directly from the income-tax calculated on a taxpayer's total income. It is distinct from deductions that reduce taxable income. Its central safeguard is that the aggregate rebate cannot exceed the tax otherwise payable.
1. What does Section 87 provide?
Chapter VIII of the Income-tax Act, 1961 deals with rebates and reliefs. Under Section 87(1), while computing income-tax on an assessee's total income for an assessment year, deductions from the amount of income-tax are allowed in accordance with the rebate provisions identified in that section, subject to their respective conditions.
Section 87(2) places an overriding ceiling: the combined rebate allowed under the relevant provisions cannot be more than the income-tax computed before allowing those rebates. A rebate can therefore reduce the relevant tax amount to zero, but does not by itself create a refund greater than tax liability. Refunds of excess tax already paid are a separate matter.
2. Explanation of the two subsections
Section 87(1): Allowance of rebates
The subsection directs that rebates under the applicable provisions of Chapter VIII are deducted from the computed income-tax, rather than from gross total income. The legislative text contains references to Sections 87A, 88, 88A, 88B, 88C, 88D and 88E reflecting amendments over time. Those references must not be read as meaning every historical rebate remains available for every current assessment year.
Section 87(2): Overall limit
Even if more than one rebate provision is relevant under the law applicable to a particular year, their aggregate cannot exceed the income-tax before such rebates. The provision prevents a negative income-tax liability arising solely from rebates.
3. Important legal terms
- Rebate: A reduction in the income-tax amount calculated on taxable income, subject to eligibility and statutory limits.
- Deduction: An amount subtracted when computing taxable income, such as an eligible Chapter VI-A deduction; it is not the same as a tax rebate.
- Total income: Income determined under the Act after applicable exemptions, adjustments and permissible deductions.
- Assessment year: The year in which income of the relevant previous year is assessed under the 1961 Act framework.
- Resident individual: An individual meeting the residence tests under the applicable income-tax law; residence is material to Section 87A eligibility.
4. Section 87 compared with Section 87A
| Issue | Section 87 | Section 87A |
|---|---|---|
| Purpose | General statutory framework for rebates from income-tax | Specific rebate for qualifying resident individuals |
| Eligibility | Depends on the rebate provision applicable | Subject to residence, total-income and regime conditions |
| Amount | No independent fixed monetary rebate under Section 87 itself | Varies with the assessment year and applicable regime |
| Maximum effect | Rebates cannot exceed income-tax before rebate | Limited by Section 87A and other applicable statutory rules |
For assessment year 2026-27, the commonly applicable Section 87A rebate under the default new regime is up to Rs. 60,000 for eligible resident individuals with total income up to Rs. 12 lakh, subject to restrictions including tax on income chargeable at special rates. Under the old regime, the ordinary Section 87A rebate remains up to Rs. 12,500 for eligible resident individuals with total income not exceeding Rs. 5 lakh. Marginal relief under the new regime may apply just above the specified income threshold. These figures are assessment-year-specific and should not be applied automatically to other years.
5. Illustrative calculation
Assume an eligible resident individual has income-tax of Rs. 9,000 before rebate, and the relevant law permits a Section 87A rebate of up to Rs. 12,500. The available rebate is restricted to Rs. 9,000; the income-tax after rebate is nil. The unused Rs. 3,500 is not paid to the taxpayer as an additional refund.
This illustration addresses the ceiling on rebates only; surcharge, cess, special-rate income and the rules of a particular assessment year must be considered separately.
6. Historical rebates mentioned in Section 87
The original article refers to Sections 88, 88A, 88B, 88C, 88D and 88E. These provisions concern older rebate arrangements, including savings-related rebates, rebates for certain categories of individuals and securities transaction tax. Several ceased to operate for later assessment years or were omitted. They remain important for historical assessments, litigation and understanding the statutory evolution, but their appearance in older reproductions of Section 87 is not proof of present-day eligibility.
For example, Section 88 concerned rebates linked to specified savings and contributions, while Section 88E concerned specified securities transaction tax. Their operative periods and repeal or sunset rules must be checked for the year concerned.
7. Income-tax Act, 2025 and transitional position
The Income-tax Act, 2025 came into force on 1 April 2026, introducing a reorganised legislative framework. For tax years governed by that Act, the corresponding current rebate provisions and their conditions must be consulted rather than assuming that section numbers and wording from the 1961 Act continue unchanged. The 1961 Act and its amendments remain relevant to earlier years and proceedings governed by transitional and saving provisions.
The statutory rebate applicable to a taxpayer depends on the relevant tax year, tax regime, nature of income and the legislation governing that year. Consult the official enacted text and subsequent notifications before filing or advising on a specific tax year.
8. Frequently asked questions
Does Section 87 itself give a Rs. 60,000 rebate?
No. Section 87 establishes the rebate framework under the 1961 Act. The specific eligibility and amount for the individual rebate arise under Section 87A and applicable amendments.
Can a rebate be greater than the tax due?
No. Section 87(2) caps the aggregate rebate at the income-tax computed before rebates.
Are a tax rebate and an income deduction the same?
No. An income deduction reduces taxable income, while a rebate reduces the tax calculated on that income.
Does Section 87A apply to every taxpayer?
No. It is directed to qualifying resident individuals and is subject to the relevant year's conditions. Companies, firms and other taxpayers do not qualify merely because they pay income-tax.
9. Official legal references
- Income Tax Department - Income-tax Act and amendments
- Income Tax Department - e-Filing portal and taxpayer guidance
- India Code - Central Acts and statutory text
- Income Tax Department - official tax law resources
Legislative note: The source page records substitution of the heading and Section 87 in 1990 (effective 1 April 1991), subsequent amendments in 1992, 2000 and 2004, and the insertion of references to Section 87A by the Finance Act, 2013 (effective 1 April 2014). The precise version of the law must be read for the assessment year in question.