Rebate under Section 87A

What it means

Section 87A gives resident individuals a rebate, that is a direct reduction in tax, if their taxable income is below a limit. Under the new regime it makes income up to ₹12 lakh effectively tax-free. Under the old regime the benefit is smaller. Section 87A is the old Act section; the same rebate continues under the Income-tax Act, 2025.

How it works

• New regime: rebate of up to ₹60,000 if total taxable income does not exceed ₹12,00,000.

• Marginal relief: if income is slightly above ₹12 lakh, tax is limited to the amount by which income exceeds ₹12 lakh.

• Old regime: rebate of up to ₹12,500 if taxable income does not exceed ₹5,00,000.

• Only resident individuals qualify. NRIs, HUFs, firms and companies do not.

• The rebate is not available against tax on special-rate income such as equity short-term capital gains under section 111A (20%) or long-term gains under section 112A (12.5%).

• Rebate is applied before adding 4% cess.

Example

Case 1: Neha has a salary of ₹12,75,000 under the new regime. After the ₹75,000 standard deduction, taxable income is ₹12,00,000. Slab tax is ₹60,000; rebate ₹60,000; tax payable nil.

Case 2: Vikram, a consultant, has taxable income of ₹12,10,000 under the new regime.

1. Slab tax: ₹20,000 (4 to 8 lakh) + ₹40,000 (8 to 12 lakh) + ₹1,500 (15% of ₹10,000) = ₹61,500.

2. Income above ₹12 lakh: ₹10,000. Marginal relief limits tax to ₹10,000.

3. Add cess 4%: ₹400. Total payable: ₹10,400 instead of ₹63,960.

Case 3: Under the old regime, taxable income of ₹5,00,000 gives tax of ₹12,500, fully wiped out by the ₹12,500 rebate.

Key points to remember

• The ₹12 lakh limit is on taxable income after deductions, not gross salary.

• If you have equity capital gains, the tax on those gains is payable even if your total income is under ₹12 lakh.

• You must still file your return to claim the rebate and any TDS refund.

• Agricultural income and exempt income are not counted in the limit, but check carefully before excluding anything.