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Income Tax · Glossary

Section 87A Rebate

Income tax rebate that effectively zeros out tax for low-to-mid income earners.

Updated 2026-10-08Source: Income-tax Act · CGST Act · CBDT/CBIC

What it means

Section 87A of the Income Tax Act, 1961 provides a rebate that wipes out tax liability up to certain thresholds:

- Old regime: rebate of up to Rs. 12,500 if taxable income is up to Rs. 5 lakh (unchanged since Budget 2019).
- New regime: rebate of up to Rs. 60,000 if taxable income is up to Rs. 12 lakh (raised from Rs. 7 lakh in Budget 2025, continues in Budget 2026).

Marginal relief is built in so taxable income marginally above the new-regime threshold does not face the full tax jump. For a professional in a specified profession who uses 44ADA on Rs. 24 lakh gross receipts, taxable income is Rs. 12 lakh (50% deemed) — the new-regime 87A rebate brings the tax to zero.

From tax year 2026-27 the rebate is s.156 of the Income-tax Act 2025, with the same limits.

A worked example

Taxable income Rs. 12,05,000 in the new regime: tax before 87A is Rs. 60,750 (5% of Rs. 4 lakh + 10% of Rs. 4 lakh + 15% of Rs. 5,000). Marginal relief caps the income tax at the excess over Rs. 12 lakh (Rs. 5,000), so the rebate is Rs. 55,750; 4% cess on the Rs. 5,000 that remains is Rs. 200, and the freelancer pays Rs. 5,200 — not Rs. 63,180.

New-regime 87A is allowed by default. Under the old regime, 87A saves tax only if your income after all deductions (80C, 80D, HRA etc.) is Rs. 5 lakh or below — run the numbers with your CA before assuming you're above it.

Run it on your own numbersTax Regime Comparison — no signup.

FAQ

Does 87A apply to capital gains?
From FY 2025-26 the new-regime rebate does not reduce tax on income taxed at special rates, including capital gains under Sections 111A, 112 and 112A (Finance Act 2025; s.156 of the Income-tax Act 2025 from tax year 2026-27). It applies only to tax on income taxed at normal slab rates.
I switched from old to new regime mid-FY. Which 87A threshold applies?
Without business income you pick the regime afresh each year when you file; what you tell your employer during the year only sets TDS. With business or professional income the new regime is the default: you leave it by filing Form 10-IEA by the return due date, that choice carries forward to later years, and you can withdraw it only once — after that the old regime is closed to you for good (Section 115BAC(6); s.202(4) of the Income-tax Act 2025 from tax year 2026-27). Either way, 87A follows the regime that applies for the year (Rs. 5L old / Rs. 12L new).

Look up the details

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Sources

Income-tax entries cite the Income-tax Act 1961, which governs FY 2025–26 (the return filed in 2026); from tax year 2026–27 the Income-tax Act 2025 applies, with new section numbers shown where we give them. GST law is unchanged. General information, not tax advice; verify with your CA before you file.

Related terms

Income Tax

Section 44ADA

Presumptive taxation scheme for specified professionals — 50% of gross receipts is deemed profit.Concepts

FY vs AY (Financial Year vs Assessment Year)

FY is the year in which income is earned; AY is the next year, when tax is assessed.

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