Section 87A rebate new regime - citizen guide 2026

If your taxable income for FY 2025-26 (the year you file in 2026, called AY 2026-27) is up to Rs 12,00,000 and you stay in the new tax regime, your income tax comes to zero. This happens because of the Section 87A rebate of up to Rs 60,000, which wipes out the tax on income inside that limit. Salaried people get an even higher cushion because of the standard deduction.

If you are short on time: check your taxable income after the standard deduction. If it is Rs 12,00,000 or less and all of it is taxed at normal slab rates, you owe no tax. Jump to the step-by-step below to confirm and claim it when you file.

A rebate is a direct cut in your tax bill, not a deduction from income. The tax is first calculated, then Section 87A knocks off up to Rs 60,000. If your tax works out to Rs 60,000 or less, the rebate cancels it fully and you pay nothing.

The new tax regime under Section 115BAC is now the default. Most people are in it unless they actively choose the old regime. For AY 2026-27, the Income Tax Department confirms the new regime rebate is up to Rs 60,000 when taxable income does not exceed Rs 12,00,000.

Salaried people and pensioners get a standard deduction of Rs 75,000 first. So a salary of about Rs 12,75,000 can reduce to Rs 12,00,000 taxable, and then the rebate takes the tax to zero. That is why you often hear the figure Rs 12.75 lakh for salaried earners.

The old regime still has its own Section 87A rebate, but it is much smaller. There the rebate is up to Rs 12,500 and applies only when taxable income does not exceed Rs 5,00,000. The old regime is unaffected by the new Rs 60,000 figure.

The trade-off is simple. The new regime gives a large rebate and a higher zero-tax ceiling, but allows very few deductions. The old regime allows deductions like 80C and HRA but caps the rebate at Rs 5 lakh income. If you have heavy deductions, compare both. Our guide on which ITR form to file for 2026-27 helps you pick once you choose a regime.

The rebate is not automatic paperwork you apply for separately. The ITR utility calculates it for you, but only if you file correctly. Here is how to confirm it.

Add up all income for FY 2025-26. If you are salaried, subtract the Rs 75,000 standard deduction. The figure you reach is your taxable income. The rebate test is on this number, not on your gross salary.

If your taxable income is Rs 12,00,000 or less, you are inside the rebate zone. If it is even slightly above, you are not fully out: marginal relief steps in so that the extra tax does not exceed the income above Rs 12 lakh. More on that trap below.

The new regime is the default. If you want it, you simply file without opting out. Salaried people with no business income choose the regime each year inside the ITR itself. Verify the regime selection on the portal before you submit.

Log in at the income tax e-filing portal, fill your ITR, and the system computes the Section 87A rebate automatically. Check the tax summary screen: the rebate line should show your tax falling to zero if you qualify. If it does not, recheck your income heads, because special-rate income can break the result.

This is the part that surprises people. The Section 87A rebate covers only income taxed at the normal slab rates. It does not cover income taxed at special flat rates.

For AY 2026-27, the Finance Act 2025 added a proviso to Section 87A that keeps special-rate income out of the rebate. So even if your total income is under Rs 12 lakh, the tax on these parts is not rebated:

• Short-term capital gains on listed shares and equity funds, taxed under Section 111A.
• Long-term capital gains, taxed under Section 112 and Section 112A.
• Crypto and other virtual digital asset gains, taxed at a flat 30% under Section 115BBH.
• Casual income like lottery and game-show winnings.

A worked example. Suppose your salary after standard deduction is Rs 10,00,000 and you also booked Rs 1,50,000 of short-term gains on shares. The salary tax may be fully rebated, but the tax on the STCG still has to be paid. The rebate will not touch it. Crypto gains were never eligible, because they are taxed at a flat special rate.

Note: the rebate position on special-rate income was disputed for earlier years and went to tribunals. For AY 2026-27 the law is now explicit through the proviso. If your case is borderline, confirm the exact computation on the portal or with a chartered accountant before relying on a zero-tax figure.

If your taxable income crosses Rs 12,00,000 by a small amount, a strict calculation could leave you paying far more tax than the extra income. Marginal relief prevents that. It limits your tax so that it never exceeds the amount by which your income went past Rs 12,00,000. This keeps the jump fair for people just over the line. The ITR utility applies marginal relief on its own when it fits.

If you earn freelance or professional income, your taxable figure depends on how you report it. Our guide to presumptive taxation under 44AD and 44ADA explains how presumptive income feeds into this same rebate test.

Dr. Shrawan Kumar Pathak helped a relative who had a salary package of Rs 12.6 lakh and assumed she had to pay tax because her CTC was above Rs 12 lakh. After the Rs 75,000 standard deduction, her taxable income was about Rs 11.85 lakh, fully inside the rebate zone. Her final tax was zero. The lesson: always test the figure after the standard deduction, not the gross package.

For a fuller walk-through of citizen tax and rights questions, see The RTI Playbook.

It applies after. For salaried people and pensioners, subtract the Rs 75,000 standard deduction first, then check the Rs 12,00,000 line. That is why a salary of around Rs 12.75 lakh can still reach zero tax in the new regime.

It is automatic inside your ITR. There is no separate application. The e-filing utility calculates your tax, then applies the rebate of up to Rs 60,000 if your taxable income is within Rs 12,00,000 and the income is taxed at normal slab rates.

No. For AY 2026-27 the rebate covers only normal slab-rate income. Short-term gains under Section 111A, long-term gains under Sections 112 and 112A, and crypto under Section 115BBH are taxed at special rates and stay outside the rebate, even if your total income is below Rs 12 lakh.

In the old regime, the Section 87A rebate is up to Rs 12,500, and only when your taxable income does not exceed Rs 5,00,000. The large Rs 60,000 rebate and the Rs 12 lakh ceiling belong to the new regime alone.

Marginal relief protects you. It caps your tax so that it does not exceed the amount by which your income crossed Rs 12,00,000. You will not face a sudden large tax just for going a few rupees over the line. The ITR utility applies this relief for you.

• Calculate your FY 2025-26 taxable income and subtract the Rs 75,000 standard deduction if you are salaried.
• Check whether the result is Rs 12,00,000 or less.
• Separate any capital gains, crypto, or lottery income, because the rebate will not cover the tax on those.
• Log in at the income tax e-filing portal and confirm the new regime is selected before you submit.
• If your numbers are close to the limit or include special-rate income, run the computation on the portal or ask a chartered accountant.

• Income Tax Department, Salaried Individuals AY 2026-27, Section 87A rebate figures: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
• Income tax e-filing portal: https://www.incometax.gov.in
• Finance Act 2025 amendment to Section 87A excluding special-rate income from AY 2026-27.

• Which ITR form to file for AY 2026-27
• Presumptive taxation under 44AD and 44ADA
• Tax on gifts from relatives under Section 56(2)(x)

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• Standard deduction for salaried and pensioners
• Section 80CCD 1B extra Rs 50,000 NPS deduction
• STCG on equity shares under Section 111A
• Dividend income tax for shareholders