Income-tax law / Tax rebates
Section 87A Income Tax Rebate: Eligibility, Limits and Calculation for AY 2026-27
Section 87A of the Income-tax Act, 1961 grants a rebate against income-tax to qualifying resident individuals. The rebate reduces tax payable, not taxable income. The amount depends on the applicable tax regime and assessment year.
Both rebates are subject to eligibility and other legal limitations. New-regime marginal relief may apply where total income slightly exceeds Rs. 12 lakh.
What is Section 87A?
Section 87A is a rebate of income-tax under Chapter VIII of the Income-tax Act, 1961. It operates after the tax on total income is calculated, subject to the provisions of Section 87. Unlike a deduction under Chapter VI-A, a rebate does not reduce gross total income or total income; it reduces the computed income-tax within the prescribed ceiling.
For the relevant assessment year, a resident individual under the old regime can claim a rebate equal to the income-tax otherwise payable or Rs. 12,500, whichever is lower, if total income does not exceed Rs. 5 lakh. For AY 2026-27, an eligible resident individual taxed under the new regime under Section 115BAC(1A) can claim a rebate up to Rs. 60,000 if total income does not exceed Rs. 12 lakh, subject to restrictions concerning tax on specified special-rate income.
Who can claim the rebate?
- Resident individuals: The taxpayer must be an individual resident in India for the relevant previous year. Non-resident individuals and HUFs, firms, companies and other entities do not qualify.
- Total-income threshold: The prescribed limit applies to total income after permissible deductions and adjustments, not to gross salary or gross receipts.
- Applicable tax regime: Different income thresholds and rebate ceilings apply under the old and new regimes.
- Tax must otherwise be payable: The rebate cannot exceed eligible income-tax before the rebate; it cannot create a negative income-tax liability.
Resident status is determined under the income-tax law for the particular year. A person who is a citizen of India but non-resident for tax purposes is not eligible merely because of citizenship.
Section 87A rebate for AY 2026-27: old and new tax regimes
| Feature | Old tax regime | New tax regime |
|---|---|---|
| Eligible taxpayer | Resident individual | Resident individual |
| Total-income threshold | Up to Rs. 5,00,000 | Up to Rs. 12,00,000 |
| Maximum rebate | Rs. 12,500 | Rs. 60,000 |
| Rebate calculation | Lower of eligible tax or Rs. 12,500 | Lower of eligible tax or Rs. 60,000, subject to special-rate restrictions |
| Marginal relief above threshold | No comparable Section 87A marginal relief | Available subject to statutory conditions |
Important: The Rs. 12 lakh threshold does not mean that every individual with Rs. 12 lakh of income has zero tax. Certain income taxable at special rates is excluded from the new-regime rebate, and other applicable rules may affect the calculation. Health and Education Cess is calculated after giving effect to the applicable rebate.
Special-rate income and marginal relief
Special-rate income
For AY 2026-27, the new-regime Section 87A rebate is not available against tax calculated at special rates under the relevant provisions of Chapter XII, including tax on specified capital gains. The distinction is between the total-income eligibility test and the amount of tax against which the rebate can actually be applied. Even if total income is within Rs. 12 lakh, tax on such special-rate income may remain payable.
Section 112A also contains its own restriction concerning the rebate against tax on certain long-term capital gains. Taxpayers with capital gains, lottery winnings or other special-rate income should calculate the rebate separately for each applicable component rather than assuming the entire liability is covered.
Marginal relief in the new regime
Where total income is slightly above Rs. 12 lakh, the law provides marginal relief so that the eligible income-tax burden does not rise disproportionately merely because the threshold is crossed. Broadly, subject to the statutory calculation and special-rate exclusions, the relief compares income-tax with the amount by which total income exceeds Rs. 12 lakh. Marginal relief is not an unlimited rebate and phases out as income increases.
Illustrative Section 87A calculations
| Illustration | Rebate treatment |
|---|---|
| Resident individual, old regime, total income Rs. 5 lakh and otherwise eligible income-tax Rs. 12,500 | Section 87A rebate Rs. 12,500; eligible income-tax becomes nil. |
| Resident individual, old regime, total income Rs. 5.1 lakh | Old-regime rebate is not available because total income exceeds Rs. 5 lakh. |
| Resident individual, new regime, AY 2026-27, total income Rs. 12 lakh entirely taxable at normal slab rates | Normal slab tax of Rs. 60,000 may be fully offset by the rebate, assuming other conditions are met. |
| Resident individual, new regime, income slightly above Rs. 12 lakh | Check marginal relief under the statutory formula; rebate is not automatically Rs. 60,000. |
| Resident individual with special-rate capital gains | Compute tax and rebate separately; special-rate tax may remain payable even below the total-income threshold. |
These illustrations simplify the facts and do not substitute for an assessment-year-specific tax computation, particularly where special-rate income, surcharge or other adjustments are involved.
Legislative history and the Income-tax Act, 2025
Section 87A was introduced by the Finance Act, 2013, effective from assessment year 2014-15. The old-regime rebate evolved over time: its maximum was initially Rs. 2,000, later Rs. 5,000 and Rs. 2,500, and increased to Rs. 12,500 with the Rs. 5 lakh threshold from AY 2020-21. Subsequent amendments introduced a distinct rebate framework for the new tax regime. The Finance Act, 2025 increased the new-regime threshold to Rs. 12 lakh and the maximum rebate to Rs. 60,000 from AY 2026-27.
The Income-tax Act, 2025 came into force on 1 April 2026 and governs the new statutory framework for tax years beginning on or after that date, subject to transitional provisions. This page preserves Section 87A terminology because it describes the rebate under the Income-tax Act, 1961, including AY 2026-27. For later tax years, consult the corresponding rebate provisions and current rules under the 2025 Act rather than assuming section numbers or thresholds are unchanged.
Frequently asked questions
Is Section 87A a deduction from income?
No. It is a rebate from computed income-tax. It does not reduce taxable income.
Can an NRI claim Section 87A?
No. Section 87A eligibility requires an individual to be resident in India for the relevant year.
Does the Rs. 12 lakh rebate apply under the old tax regime?
No. The Rs. 12 lakh threshold and Rs. 60,000 ceiling apply to the new tax regime for AY 2026-27. The old regime retains its separate Rs. 5 lakh threshold and Rs. 12,500 ceiling.
Is income of Rs. 12 lakh always tax-free?
No. The rebate is subject to the statutory rules, including restrictions on tax computed at special rates. The precise tax outcome depends on the composition of income.
What is the difference between Section 87 and Section 87A?
Section 87 sets out the general framework and limit for rebates under the relevant chapter. Section 87A specifies the rebate available to qualifying resident individuals.
Official legal references
- Income Tax Department - Income-tax Act, 1961
- Income Tax Department - e-Filing portal and taxpayer guidance
- India Code - central legislation
- Union Budget - Finance Acts and explanatory materials
Editorial note: Tax provisions are assessment-year-specific. Check subsequent Finance Acts, notifications and official return instructions before applying these figures to a later year.