Tax Rebate Under Section 87A: Eligibility, Limits and How to Claim

Introduction

Tax Rebate Under Section 87A allows eligible resident individuals to reduce their final income-tax liability. It is applied after income tax is calculated on total income and is different from a tax deduction or income-tax refund. For FY 2025-26, corresponding to AY 2026-27, the rebate depends on the tax regime selected.

Under the old tax regime, a resident individual with total income up to ₹5 lakh can claim a maximum rebate of ₹12,500. Under the new tax regime, a resident individual with total income up to ₹12 lakh can claim a maximum rebate of ₹60,000. Marginal relief may also be available under the new tax regime when total income slightly exceeds ₹12 lakh.

What Is Tax Rebate Under Section 87A?

Tax Rebate Under Section 87A provides a reduction from the income tax payable by an eligible resident individual. It does not reduce gross income or taxable income. Instead, the rebate is deducted from the tax calculated on total income.

The calculation generally follows these steps:

• Calculate income from all applicable sources.
• Claim eligible exemptions, deductions, and loss set-offs.
• Arrive at total income.
• Calculate income tax under the selected tax regime.
• Reduce the eligible Section 87A rebate.
• Add Health and Education Cess at 4% to the remaining tax.

The rebate cannot exceed the actual income-tax liability. For example, if the calculated tax is ₹8,000, the rebate will be limited to ₹8,000 even where the maximum permitted rebate is higher.

Under the new tax regime, the rebate also cannot exceed the tax calculated at normal slab rates under Section 115BAC(1A).

Who Is Eligible to Claim Section 87A Rebate?

A taxpayer can claim Tax Rebate Under Section 87A when:

• The taxpayer is an individual.
• The individual is resident in India during the relevant financial year.
• The individual’s total income is within the limit applicable to the selected tax regime.
• The individual satisfies the conditions prescribed under Section 87A.

Resident senior citizens and super senior citizens can also claim the rebate if they meet the applicable conditions. There is no maximum age limit for claiming the Section 87A rebate.

The rebate is not available to non-resident individuals, Hindu Undivided Families, partnership firms, LLPs, companies, trusts or other non-individual taxpayers.

Taxpayers must also report all sources of income correctly and select the appropriate tax regime while filing their Income Tax Return.

Can ₹12.75 Lakh Salary Be Tax-Free?

A salaried individual earning up to ₹12.75 lakh may have no income-tax liability under the new tax regime if the standard deduction of ₹75,000 is available and there is no income taxable at special rates.

After claiming the standard deduction, the individual’s total income may reduce to ₹12 lakh, making the person eligible for a rebate of up to ₹60,000 under Section 87A.

The Section 87A income limit remains ₹12 lakh. The ₹12.75 lakh figure applies because eligible salaried individuals and pensioners may claim a standard deduction of ₹75,000 under the new tax regime.

The result may be different if the taxpayer has capital gains, lottery winnings, online gaming income, virtual digital asset income or any other income taxable at special rates.

What Is Marginal Relief Under Section 87A?

Marginal relief is available under the new tax regime when total income slightly exceeds ₹12 lakh.

Without marginal relief, a small increase in income could result in a tax liability higher than the additional income earned. Marginal relief ensures that the income tax payable before cess does not exceed the amount by which total income exceeds ₹12 lakh.

For example, if total income is ₹12.10 lakh:

Marginal relief under Section 87A is available under the new tax regime in eligible cases. It is different from marginal relief available in relation to surcharge.

Is the Section 87A Rebate Available on Capital Gains?

Special care is required when total income includes capital gains or other income taxable at special rates.

Such income may include:

• Short-term capital gains taxable at a special rate
• Long-term capital gains taxable at a special rate
• Lottery or betting winnings
• Online gaming income
• Income from virtual digital assets

For AY 2026-27 under the new tax regime, the Section 87A rebate cannot exceed the tax calculated at normal slab rates under Section 115BAC(1A).

Therefore, tax attributable to income taxable at special rates may remain payable even when the taxpayer’s total income does not exceed ₹12 lakh.

Taxpayers should calculate income taxable at normal slab rates and income taxable at special rates separately instead of assuming that the entire tax liability will become nil.

Difference Between Tax Rebate, Deduction and Refund

A tax deduction reduces taxable income before tax is calculated. A tax rebate reduces the tax calculated on taxable income.

A tax refund arises when TDS, advance tax, TCS or self-assessment tax already paid is higher than the final tax liability.

Section 87A is therefore a rebate from income tax. It is neither a deduction from income nor an automatic tax refund.

Section 87A and Section 156 of the Income-tax Act, 2025

The Income-tax Act, 2025, came into force on 1 April 2026. For Tax Year 2026-27 and subsequent years, Section 156 contains the corresponding rebate provision.

Income earned up to FY 2025-26 continues to be governed by Section 87A of the Income-tax Act, 1961.

Section 156 broadly continues the rebate of up to ₹12,500 for eligible resident individuals with total income up to ₹5 lakh and up to ₹60,000 under the new tax regime where total income does not exceed ₹12 lakh, subject to the prescribed conditions.

Ebizfiling Assistance for Section 87A Rebate

Ebizfiling can assist individuals with income-tax return filing and the correct calculation of Tax Rebate Under Section 87A. Our tax experts can help with:

• Checking Section 87A rebate eligibility
• Comparing the old and new tax regimes
• Calculating the applicable rebate and marginal relief
• Reviewing salary, pension, capital gains, and other income
• Claiming the correct standard deduction and eligible deductions
• Filing the appropriate Income Tax Return

Contact Ebizfiling for professional assistance with ITR filing and claiming Tax Rebate Under Section 87A.

Conclusion

Tax Rebate Under Section 87A can reduce or eliminate the tax liability of eligible resident individuals. For FY 2025-26, the old tax regime allows a maximum rebate of ₹12,500 where total income does not exceed ₹5 lakh. The new tax regime allows a maximum rebate of ₹60,000 where total income does not exceed ₹12 lakh.

Before claiming the rebate, taxpayers should check their residential status, selected tax regime, total income, and nature of income. Capital gains and other income taxable at special rates must be reviewed separately to avoid an incorrect tax calculation.

Suggested Reads:

Section 111A and 112A of Income Tax Act

Frequently Asked Questions