Section 87A Rebate: Eligibility, Calculation and New Rules for Tax Year 2026–27

A small change in your taxable income can sometimes make a big difference to your final tax bill. For many Indian taxpayers, the rebate under Section 87A (as per IT Act, 1961) has helped reduce income tax to zero.
 

From 1 April 2026, this benefit is covered under Section 156 of the Income-tax Act, 2025.
 

For Tax Year 2026–27, eligible resident individuals can receive a rebate of up to ₹60,000 under the new tax regime if their total income is up to ₹12 lakh. Under the old regime, the maximum rebate is ₹12,500 for income up to ₹5 lakh.
 

Here's how eligibility, calculations and the new rules work.

 

What Is the Rebate Under Section 87A?
 

Section 87A of the Income-tax Act, 1961 provided eligible resident individuals with a direct reduction in their income tax liability.
 

Under the Income-tax Act, 2025, the corresponding benefit appears in Section 156.
 

The rebate is applied after calculating income tax but before adding health and education cess.
 

Rebate vs Deduction vs Exemption

 

For example, if your eligible income tax is ₹10,000 and you qualify for a ₹10,000 rebate, your tax after rebate becomes zero.
 

A ₹10,000 deduction would not necessarily reduce your tax by the same amount.

 

Who Is Eligible for the Section 87A Rebate?
 

Under Section 156 (as per IT Act, 2025), eligibility depends on residency, taxable income and the chosen tax regime.
 

Resident Individuals
 

The rebate is available to qualifying individuals who are residents of India for income-tax purposes. This can include salaried employees, self-employed individuals, senior citizens, and super-senior citizens.
 

Non-resident individuals, Hindu Undivided Families (HUFs) and companies are not eligible.

 

Income Limits
 

Under the new regime, total income must ordinarily be within ₹12 lakh to receive the regular rebate. Under the old regime, the corresponding limit is ₹5 lakh.

These thresholds refer to total income after applicable deductions, not simply annual salary.

 

Special-Rate Income
 

The new-regime rebate is restricted to income tax calculated at the applicable slab rates.
 

Tax on income subject to special rates, such as certain capital gains or lottery winnings, cannot be reduced using this rebate.
 

Therefore, having total income below ₹12 lakh does not guarantee zero tax in every case.

 

Section 87A Rebate Limits for Tax Year 2026–27
 

The following limits apply under Section 156 of the Income-tax Act, 2025.

 

The maximum rebate is not an automatic payment. It can reduce eligible income tax only up to the amount payable.

 

How Is Section 87A Rebate Calculated?
 

Follow these steps:
 

1. Calculate total income after permitted deductions.
    
2. Apply the relevant tax slabs.
    
3. Identify the portion of tax eligible for rebate.
    
4. Deduct the applicable rebate.
    
5. Add cess to any remaining tax.
   
    

Example 1: New Tax Regime
 

Suppose Priya, a resident individual, has total taxable income of ₹10 lakh, entirely taxed at normal slab rates.

 

Although the maximum rebate is ₹60,000, Priya receives only the ₹40,000 needed to eliminate her eligible tax.

 

Example 2: Old Tax Regime
 

Suppose Rajesh, aged 35, has total taxable income of ₹5 lakh after permitted deductions.
 

His income tax under the old-regime slabs is ₹12,500.
 

The applicable rebate reduces his tax to zero.
 

These illustrations exclude special-rate income and other tax complications.

 

Marginal Relief: What If Your Income Exceeds ₹12 Lakh?
 

Under the new regime, marginal relief helps prevent a sharp increase in tax when total income crosses ₹12 lakh by a small amount.
 

Consider taxable income of ₹12.10 lakh, entirely subject to normal slab rates.

 

Health and education cess is calculated separately.
 

Marginal relief is available only within the applicable statutory conditions. It is different from marginal relief relating to surcharge on higher incomes.

 

How to Claim the Section 87A Rebate
 

The rebate is generally calculated through the applicable income-tax return.
 

Step 1: Identify the correct tax year.
 

Step 2: Calculate income from all sources, including special-rate income.
 

Step 3: Determine your tax regime and applicable deductions.
 

Step 4: Review the rebate calculated in the return.
 

Step 5: Verify the figures and submit the return.
 

For Tax Year 2026–27, the return will ordinarily be filed in 2027 using the forms and procedures applicable under the Income-tax Act, 2025.
 

Having zero tax payable does not automatically remove the obligation to file a return.

 

What Changed Under the Income-tax Act, 2025?
 

The new Act came into force on 1 April 2026.
 

1. Section 87A Is Now Section 156
 

The earlier rebate provision has been carried into Section 156.
 

The current provision retains the ₹60,000 maximum rebate under the new regime and ₹12,500 under the old regime, subject to their respective conditions.

 

2. "Tax Year" Replaces the Earlier Terminology
 

The new Act uses tax year instead of the earlier separate concepts of previous year and assessment year.
 

For income earned from 1 April 2026 to 31 March 2027, the correct reference is Tax Year 2026–27.

 

3. Earlier Returns Remain Under the Old Act
 

Income earned during FY 2025–26 belongs to AY 2026–27 under the Income-tax Act, 1961.
 

That return is separate from the return for Tax Year 2026–27 under the new Act.
 

The distinction matters because both filing frameworks may be relevant during the transition.

 

Benefits of the Rebate
 

For eligible taxpayers, the rebate can:
 

• Reduce income tax payable.
   
• Bring eligible slab-rate tax liability to zero.
   
• Make tax calculations more favourable for qualifying moderate-income households.
   
• Support better understanding of annual tax obligations.
   

However, it should not be confused with an investment benefit or a tax-saving product.

 

Common Mistakes to Avoid
 

• Confusing gross salary with total income: Eligibility depends on taxable total income after permitted deductions.
   
• Assuming ₹12 lakh always means zero tax: Special-rate income may still create a tax liability.
   
• Using outdated limits: Earlier tax years had different rebate thresholds.
   
• Claiming the rebate as an NRI: Only resident individuals qualify.
   
• Mixing up tax years: AY 2026–27 and Tax Year 2026–27 refer to different income periods.
   
• Ignoring marginal relief: Taxpayers slightly above ₹12 lakh should check whether they qualify.
  
   

Plan with Clarity
 

The rebate under Section 87A, now provided through Section 156, remains an important benefit for eligible resident taxpayers.
 

For Tax Year 2026–27, understanding the correct income limits, tax regime and special-rate income restrictions can help you estimate your tax liability more accurately.
 

As you review your finances, remember that tax planning is only one part of long-term financial security. You can also explore a suitable life insurance plan based on your family's protection needs.

 

FAQs About Section 87A
 

Is Section 87A applicable in FY 2026–27?
 

The corresponding rebate continues under Section 156 of the Income-tax Act, 2025, for Tax Year 2026–27.

 

What is the maximum rebate for Tax Year 2026–27?
 

Eligible resident individuals may receive up to ₹60,000 under the new regime or ₹12,500 under the old regime, subject to income thresholds and statutory conditions.

 

Can I claim the rebate if my income exceeds ₹12 lakh?
 

Under the new regime, marginal relief may be available when total income exceeds ₹12 lakh by a limited amount, subject to the applicable rules.

 

Can NRIs claim the rebate?
 

No. The rebate is restricted to qualifying resident individuals.

 

Are capital gains covered by the rebate?
 

Under the new regime, the rebate does not reduce tax charged at special rates, including tax on specified capital gains.

 

Are AY 2026–27 and Tax Year 2026–27 the same?
 

No. AY 2026–27 relates to income earned during FY 2025–26 under the earlier Act. Tax Year 2026–27 covers income earned from 1 April 2026 to 31 March 2027 under the new Act.
 

This blog has been reviewed in consultation with our tax experts