Section 156 of the Income Tax Act, 2025: Rebate Rules and Limits

Introduction

Section 156 of the Income Tax Act, 2025 provides an income tax rebate for resident individuals who satisfy the prescribed income conditions. The provision applies from 1 April 2026 under the Income tax Act, 2025. It reduces the income tax calculated on total income. It does not reduce gross total income or taxable income. The Section 156 income tax rebate depends on the applicable tax regime and the total income of the individual. A resident individual may receive a rebate of up to ₹12,500 under Section 156(1) or a ₹60,000 income tax rebate under Section 156(2)(a). Marginal relief may also be available where the total income of an individual is slightly above ₹12 lakh.

What Is Section 156 of the Income Tax Act, 2025?

Section 156 allows an eligible resident individual to reduce the permitted rebate from the income tax calculated before allowing the rebate. Tax is first calculated according to the applicable income tax rates. The available rebate is then deducted from the calculated tax.

Therefore, the rebate under Income Tax Act 2025 is different from an income deduction or exemption. A deduction reduces taxable income, whereas a rebate directly reduces the income tax payable. Income may remain taxable even when the final tax liability becomes nil because of Section 156 of the Income Tax Act rebate.

Who Can Claim Rebate Under Section 156?

The income tax rebate for resident individuals is available when the following conditions are satisfied:

• The taxpayer must be an individual.
• The individual must be resident in India.
• Total income must be within the applicable limit.
• The applicable tax regime must be identified.
• Income tax must be calculated before claiming the rebate.

NRIs, Hindu Undivided Families, partnership firms, LLPs and companies cannot claim the rebate because Section 156 of the Income Tax Act is specifically available to resident individuals.

Section 156 Rebate Limits

The following table explains the applicable income limits and maximum rebate amounts:

Under Section 156(1), the rebate is 100% of the income tax payable or ₹12,500, whichever is lower.

Under Section 156(2)(a), the rebate is 100% of the income tax payable or ₹60,000, whichever is lower.

Rebate Under Section 156(1)

Section 156(1) applies to a resident individual whose total income for the relevant tax year does not exceed ₹5 lakh.

The available rebate is the lower of:

• 100% of the income tax payable; or
• ₹12,500.

The rebate cannot be higher than the actual amount of income tax payable.

For example, suppose the income tax calculated for a resident individual is ₹10,000. The available rebate will be ₹10,000 because it is lower than the maximum rebate of ₹12,500.

The final income tax payable after allowing the rebate will be nil.

The ₹5 lakh limit is checked using total income and not gross salary, gross receipts or gross total income. Eligible deductions must first be considered to determine the taxpayer’s total income.

Rebate Under Section 156(2)(a)

Section 156(2)(a) provides the income tax rebate under new tax regime rates contained in Section 202(1).

It applies where:

• The taxpayer is a resident individual.
• Total income is chargeable under Section 202(1).
• Total income does not exceed ₹12 lakh.

The available rebate is ₹60,000 or 100% of the eligible income tax payable, whichever is lower.

Tax Calculation on ₹12 Lakh

The tax on total income of ₹12 lakh under the normal rates of Section 202(1) can be calculated as follows:

The official tax slabs also provide a nil rate up to ₹4 lakh, 5% between ₹4 lakh and ₹8 lakh, and 10% between ₹8 lakh and ₹12 lakh.

The income tax rebate up to ₹12 lakh can reduce the calculated tax of ₹60,000 to nil, provided all the conditions of Section 156 of the Income Tax Act are satisfied.

Is Income Up to ₹12 Lakh Tax-Free?

It is not technically correct to describe ₹12 lakh as the basic exemption limit.

Under Section 202(1), income is first taxed according to the prescribed slab rates. The Section 156 of the Income Tax Act rebate is then reduced from the calculated tax.

For example, the income tax calculated on total income of ₹12 lakh is ₹60,000. The ₹60,000 income tax rebate may reduce the final tax liability to nil.

Therefore, an eligible resident individual may have no final income tax payable on total income of up to ₹12 lakh. However, the income itself is not exempt from tax.

The nil tax liability arises because of the rebate and not because ₹12 lakh is the basic exemption limit.

Marginal Relief Under Section 156(2)(b)

A resident individual is not eligible for the flat rebate under Section 156(2)(a) when total income exceeds ₹12 lakh. However, marginal relief may be available under Section 156(2)(b).

Marginal relief is available where:

• Total income exceeds ₹12 lakh; and
• Income tax payable exceeds the amount by which total income exceeds ₹12 lakh.

The marginal relief formula is:

Marginal relief = Income tax payable before marginal relief − Income exceeding ₹12 lakh

Example of Marginal Relief

Suppose the total income of a resident individual is ₹12,10,000.

The income exceeding ₹12 lakh is:

₹12,10,000 − ₹12,00,000 = ₹10,000

The income tax under Section 202(1) will be:

• Tax up to ₹12 lakh: ₹60,000
• Tax on the next ₹10,000 at 15%: ₹1,500
• Total tax before relief: ₹61,500

The marginal relief will be:

₹61,500 − ₹10,000 = ₹51,500

The tax payable after marginal relief will therefore be:

₹61,500 − ₹51,500 = ₹10,000

Applicable cess will be calculated on the remaining tax of ₹10,000.

Marginal relief ensures that the additional tax payable does not exceed the additional income earned above ₹12 lakh.

Does Section 156 Apply to Special-Rate Income?

Certain types of income may be taxed separately at special rates instead of the normal rates provided under Section 202(1).

Examples may include:

• Certain short-term and long-term capital gains
• Lottery winnings
• Online gaming income
• Income from virtual digital assets

Under Section 156(3), the rebate available under Section 156(2) cannot exceed the tax payable at the normal slab rates under Section 202(1). Therefore, tax calculated separately under a special-rate provision is not covered by the rebate to that extent. Normal-rate income and special-rate income should be calculated separately before claiming the rebate.

Section 156 Rebate and ITR Filing Support

Ebizfiling assists resident individuals in calculating their taxable income and claiming the correct rebate under Section 156 of the Income Tax Act, 2025.

Our income tax experts can help with:

• Identifying the applicable tax regime under Section 202(1)
• Calculating the rebate of up to ₹12,500 or ₹60,000
• Checking eligibility for marginal relief above ₹12 lakh
• Reviewing normal-rate and special-rate income
• Preparing and filing the income tax return online

Proper tax calculation can help avoid incorrect rebate claims, tax mismatches, and unnecessary notices.

File your income tax return with Ebizfiling and get professional assistance with tax calculation, rebate eligibility and online ITR filing.

Conclusion

Section 156 of the Income Tax Act provides tax relief to eligible resident individuals after income tax has been calculated. A rebate of up to ₹12,500 is available where total income does not exceed ₹5 lakh. For income chargeable under Section 202(1), a rebate of up to ₹60,000 is available where total income does not exceed ₹12 lakh. Marginal relief protects individuals whose income slightly exceeds ₹12 lakh from a sudden increase in tax liability. Before claiming the rebate, taxpayers should check their residential status, total income, applicable tax regime, and whether any part of their income is taxable at special rates.

Suggested Reads:

Tax Rebate Under Section 87A

Frequently Asked Questions