Section 87A Rebate FY 2025-26: How ₹12 Lakh Income Becomes Tax-Free
Last verified: June 2026, against the Income Tax Act provisions and Budget 2025 announcements cited below. Figures apply to FY 2025-26 (AY 2026-27). This is general information, not personal tax advice.
Budget 2025 delivered the single biggest middle-class tax change in years: under the new tax regime, income up to ₹12 lakh is now effectively tax-free — and up to ₹12.75 lakh for salaried people once the standard deduction is counted. The mechanism behind this is the enhanced Section 87A rebate. Here is exactly how it works for FY 2025-26.
What the Section 87A rebate actually is
Section 87A is not an exemption or a deduction — it is a rebate, a direct reduction in the tax you owe after your tax is calculated on the slabs. You first compute tax normally, then the rebate is subtracted. If the rebate is equal to or larger than your tax, your liability becomes zero.
FY 2025-26 limits at a glance
| Regime | Income limit for full rebate | Maximum rebate |
|---|---|---|
| New regime (default) | ₹12,00,000 taxable income | ₹60,000 |
| Old regime | ₹5,00,000 taxable income | ₹12,500 |
For a salaried person under the new regime, the ₹75,000 standard deduction sits on top, so a gross salary of ₹12.75 lakh reduces to ₹12 lakh taxable — and the rebate wipes out the tax.
The new-regime slabs for FY 2025-26
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Worked example: ₹12 lakh income, new regime
Tax on the slabs: 5% of the ₹4–8 lakh band = ₹20,000; 10% of the ₹8–12 lakh band = ₹40,000. Total = ₹60,000. The 87A rebate is up to ₹60,000, so it cancels the entire bill and you pay zero. Use our income tax calculator to test your own number.
The catch most people miss: special-rate income
The rebate applies to income taxed at slab rates. It does not wipe out tax on income taxed at special rates — long-term capital gains under Section 112A (12.5%), short-term gains under 111A (20%), or lottery/online-gaming winnings. So even if your total income is under ₹12 lakh, capital-gains tax on equity can still be payable. This is a common and expensive misunderstanding.
Marginal relief: when you earn just above ₹12 lakh
Without protection, earning ₹12,10,000 instead of ₹12,00,000 would push tax from ₹0 to about ₹61,500 — a ₹61,500 tax on ₹10,000 of extra income. Marginal relief prevents this: your tax cannot exceed the amount by which your income crosses ₹12 lakh. So on ₹12,10,000 you pay roughly ₹10,000, not ₹61,500. This relief tapers off and stops at around ₹12,75,000, after which normal slab tax applies in full.
Old regime: rebate is much smaller
Under the old regime the 87A rebate is only ₹12,500 and applies up to ₹5 lakh taxable income. If you rely on deductions like 80C, HRA and home-loan interest, compare both regimes — see old vs new tax regime before deciding.
How to claim it
You do not apply separately. When you file your ITR, the portal computes tax on the slabs and applies the 87A rebate automatically if you are a resident individual within the income limit. Just pick the correct regime and verify the computation.
FAQs
Is the ₹12 lakh limit before or after standard deduction?
After. The ₹12 lakh is taxable income. A salaried person can have gross salary of ₹12.75 lakh because the ₹75,000 standard deduction brings taxable income to ₹12 lakh.
Do NRIs get the 87A rebate?
No. Section 87A is available only to resident individuals.
Does the rebate cover capital gains?
Not for income taxed at special rates such as equity LTCG/STCG. The rebate only reduces tax on slab-rate income.
Can I get it under the old regime too?
Yes, but only up to ₹5 lakh taxable income and capped at ₹12,500.