Section 87A Rebate for FY 2025-26: Income Up to Rs 12 Lakh Tax-Free
Budget 2025 raised the section 87A rebate under the new tax regime so that resident individuals pay zero tax on taxable income up to Rs. 12,00,000 for FY 2025-26 (AY 2026-27). The rebate is applied while filing the return, but it has important exclusions that catch many investors by surprise.
Rebate limits at a glance
| Particulars | New regime (AY 2026-27) | Old regime (AY 2026-27) |
|---|---|---|
| Maximum rebate | Rs. 60,000 | Rs. 12,500 |
| Income ceiling for rebate | Rs. 12,00,000 | Rs. 5,00,000 |
| Effective tax-free salary (with standard deduction) | Rs. 12,75,000 | Rs. 5,50,000 |
| Marginal relief beyond ceiling | Yes, up to about Rs. 12,70,588 | No |
| Who can claim | Resident individuals only | Resident individuals only |
How the rebate works in the new regime
- Tax is first computed on the new-regime slabs: nil up to Rs. 4,00,000, 5% on Rs. 4-8 lakh, 10% on Rs. 8-12 lakh, and so on.
- Slab tax on exactly Rs. 12,00,000 comes to Rs. 60,000 (Rs. 20,000 + Rs. 40,000). The 87A rebate wipes out this full amount, so net tax is zero.
- The rebate is applied before health and education cess of 4%, so cess is also zero when the rebate covers the full tax.
- If taxable income crosses Rs. 12,00,000 the rebate is lost entirely, but marginal relief protects incomes slightly above the line.
New regime slabs and tax before rebate (FY 2025-26)
The rebate makes more sense when you see how the slab tax builds up. These are the new-regime slabs for FY 2025-26 with the cumulative tax at each boundary, before the 87A rebate and cess.
| Income slab | Rate | Tax in this slab | Cumulative tax at upper limit |
|---|---|---|---|
| Up to Rs. 4,00,000 | Nil | Nil | Nil |
| Rs. 4,00,001 - 8,00,000 | 5% | Rs. 20,000 | Rs. 20,000 |
| Rs. 8,00,001 - 12,00,000 | 10% | Rs. 40,000 | Rs. 60,000 (fully covered by 87A) |
| Rs. 12,00,001 - 16,00,000 | 15% | Rs. 60,000 | Rs. 1,20,000 |
| Rs. 16,00,001 - 20,00,000 | 20% | Rs. 80,000 | Rs. 2,00,000 |
| Rs. 20,00,001 - 24,00,000 | 25% | Rs. 1,00,000 | Rs. 3,00,000 |
| Above Rs. 24,00,000 | 30% | - | - |
The "87A trap": special-rate income
- Under the new regime, the rebate is not available against tax on special-rate income, mainly short-term capital gains on listed shares and equity funds under section 111A and long-term capital gains under section 112A.
- The rebate applies only to tax on slab-rate income such as salary, pension, interest and rent. The ITR utility computes this automatically and many taxpayers see an unexpected tax demand because of it.
- LTCG under section 112A still enjoys its own exemption of Rs. 1,25,000 per year, separate from 87A.
Examples
Salary Rs. 12.75 lakh
Gross salary Rs. 12,75,000 minus standard deduction Rs. 75,000 = taxable income Rs. 12,00,000. Slab tax Rs. 60,000, 87A rebate Rs. 60,000. Tax payable: nil.
Salary Rs. 11 lakh + STCG Rs. 1 lakh
Taxable income Rs. 12,00,000, but Rs. 1,00,000 is STCG under section 111A. The rebate covers only the slab tax on Rs. 11,00,000 (after standard deduction). Tax on the STCG portion is still payable at the special rate, plus cess.
Old regime, income Rs. 4.9 lakh
Taxable income Rs. 4,90,000 in the old regime. Slab tax Rs. 12,000 is fully cancelled by the Rs. 12,500 rebate. At Rs. 5,10,000 the rebate vanishes and tax of about Rs. 14,500 plus cess becomes payable.
Pension Rs. 9 lakh + FD interest Rs. 2.8 lakh
A resident pensioner has pension of Rs. 9,00,000 (Rs. 8,25,000 after standard deduction) and FD interest of Rs. 2,80,000, so taxable income is Rs. 11,05,000. All of it is slab-rate income, so the entire slab tax of Rs. 50,500 is wiped out by the 87A rebate. Tax payable: nil, and any TDS the bank deducted comes back as a refund.
How to claim the 87A rebate on the incometax.gov.in e-filing portal
There is no separate form for the rebate - it is computed inside the ITR. Follow these steps so the utility picks it up correctly:
- Log in at incometax.gov.in and go to e-File > Income Tax Returns > File Income Tax Return, select AY 2026-27 and the online mode.
- Pick the correct form - ITR-1 for simple salary cases, ITR-2 if you have larger capital gains - and confirm your regime. The new regime is pre-selected by default.
- Verify the pre-filled salary, interest and other income against Form 16, AIS and Form 26AS, and add anything missing. An under-reported income that later surfaces can push you past Rs. 12 lakh and cancel the rebate.
- Report capital gains in the correct schedule so that 111A/112A income is taxed separately and your slab-rate income is identified for the rebate.
- Open the tax computation / Tax Paid summary. The rebate appears on its own line ("Rebate u/s 87A") and reduces the tax before cess. Check that it equals the slab tax (maximum Rs. 60,000).
- Preview the return, submit, and e-verify within 30 days using Aadhaar OTP, net banking or EVC so the return - and any refund of TDS already deducted - is processed.
Which ITR form should be used?
Salaried taxpayers claiming the rebate normally file ITR-1 (income up to Rs. 50 lakh, limited capital gains) or ITR-2 where there are larger capital gains. The rebate is auto-calculated by the utility; you only need to report income correctly. Compare regimes first at old vs new tax regime or use the income tax calculator.
Common mistakes to avoid
- Assuming "Rs. 12 lakh tax-free" covers capital gains. STCG under section 111A and LTCG under section 112A are taxed separately even when total income is below Rs. 12 lakh.
- Ignoring small interest income. FD interest reported in AIS can push taxable income just over Rs. 12 lakh, killing the entire rebate and leaving only marginal relief.
- Confusing the two regimes' limits. The Rs. 60,000/Rs. 12 lakh figures belong to the new regime; the old regime rebate is still Rs. 12,500 with a Rs. 5 lakh ceiling.
- Claiming the rebate as a non-resident. Section 87A is for resident individuals only.
- Skipping e-verification. An unverified return is treated as not filed, so the zero-tax computation and any refund are lost.
- Forgetting that lottery winnings are special-rate income. Tax under section 115BB is payable at 30% regardless of the rebate.
Documents to keep ready
- Form 16 showing salary and standard deduction.
- AIS and Form 26AS to confirm all incomes (mismatches can push you past Rs. 12 lakh - see AIS/26AS mismatch guide).
- Broker capital gains statement to separate 111A/112A income from slab income.
- Bank and FD interest certificates.
Frequently asked questions
Is income up to Rs 12 lakh tax-free for FY 2025-26?
Yes, for resident individuals under the new tax regime. The section 87A rebate of up to Rs. 60,000 cancels the entire slab tax on taxable income up to Rs. 12,00,000. Salaried taxpayers also get the Rs. 75,000 standard deduction, making salary up to Rs. 12,75,000 effectively tax-free.
What is the 87A rebate limit in the old regime for AY 2026-27?
Under the old regime the rebate remains up to Rs. 12,500 and is available only when taxable income does not exceed Rs. 5,00,000. There is no marginal relief at this threshold in the old regime.
Can I claim the 87A rebate against short-term capital gains?
No. Under the new regime the rebate is not allowed against special-rate income such as STCG under section 111A or LTCG under section 112A. Tax on such gains is payable even if total income is below Rs. 12 lakh.
Do NRIs get the section 87A rebate?
No. The rebate is available only to resident individuals. Non-residents, HUFs, firms and companies cannot claim it regardless of income level.
Do I have to apply separately to claim the 87A rebate?
No. The ITR utility on incometax.gov.in computes the rebate automatically once income is filled in. Just confirm the "Rebate u/s 87A" line in the tax computation before submitting and e-verify the return within 30 days.
What happens if my taxable income is Rs 12,10,000 in FY 2025-26?
The rebate is lost entirely, but marginal relief caps your tax (before cess) at Rs. 10,000 - the amount by which income exceeds Rs. 12 lakh - instead of the slab tax of Rs. 61,500. Marginal relief runs out at about Rs. 12,70,588.
Get expert-assisted filing
All India ITR can check whether your special-rate income silently disqualifies part of your 87A rebate and compute the exact rebate, marginal relief and regime choice before filing.
Related current ITR guides
More AY 2026-27 tax guides
Save tax: Home loan benefits · NPS (80CCD) · Donations (80G) · Education loan (80E) · Interest income (80TTA/80TTB) · Form 15G/15H · Capital gains exemptions (54/54F/54EC)
Investors and traders: F&O and intraday tax · ESOP and RSU tax · Share buyback tax · Foreign income and Schedule FA · Gift tax (56(2)(x)) · HUF taxation
Calculators and tools: Income tax calculator · Advance tax calculator · 80C tax-saving calculator · NPS calculator · Gratuity calculator · EPF calculator · Crypto tax calculator · HRA calculator
Filing and compliance: Section 87A rebate · Marginal relief · Form 10-IEA · PAN-Aadhaar link · AIS and TIS · ITR-U updated return · Discard ITR and condonation · TDS on rent and property · Income Tax Act 2025
Sources reviewed
- PIB, Ministry of Finance: Union Budget 2025-26 - no personal income tax on income up to Rs 12 lakh
- Income Tax Department: Tax slabs and returns applicable to salaried individuals
This guide is for general understanding. The rebate computation on returns with capital gains, lottery winnings or other special-rate income should be verified in the ITR utility before submission.
