Section 87A is a rebate that wipes out your income tax if your taxable income stays under a limit. For FY 2026-27, the new regime makes tax nil up to ₹12 lakh; the old regime up to ₹5 lakh. It is a rebate on the tax, not a bigger tax-free slab – crossing the line can bring the bill back.
That last point is why so many people misread the headline ₹12 lakh figure.
Section 87A at a glance (FY 2026-27)
What is the Section 87A rebate?
Section 87A of the Income Tax Act gives resident individuals a rebate – an amount knocked off the tax you would otherwise owe. The government first calculates your tax using the normal slabs, then subtracts the 87A rebate. If the rebate is at least as large as that tax, your final bill is zero.
It is not a deduction and not an exemption. Your income is still computed and slotted into the slabs in the usual way; the relief comes at the very end, against the tax figure itself. The new regime is the default for FY 2026-27, and the old regime is now opt-in, so which set of 87A limits applies depends on the regime you file under.
How much is the rebate for FY 2026-27?
The rebate is capped at the tax that falls due within the threshold, which is why the two regimes look so different.
- New regime: the rebate makes tax nil for taxable income up to ₹12 lakh. Because the tax on that much income under the new-regime slabs works out to exactly ₹60,000, that is the effective ceiling on the rebate.
- Old regime: the rebate is up to ₹12,500, which zeroes out the tax on taxable income up to ₹5 lakh.
Salaried taxpayers also get a standard deduction before this – ₹75,000 under the new regime, ₹50,000 under the old – so a salaried person's gross salary can sit a little above the taxable-income threshold and still land at nil tax. To compare the two regimes on your own numbers, use the old vs new regime calculator.
Rebate or exemption – why the difference matters
This is the part that trips people up. If ₹12 lakh were an exemption, income above it would simply be taxed on the excess, the way a slab works. Because it is a rebate, the relief is all-or-nothing around the threshold: stay under and the tax is cancelled; cross it and the rebate no longer covers the tax, which is then charged from the lower slabs upward.
So the ₹12 lakh figure is not a tax-free slab you always keep. It is the point up to which a rebate happens to cancel the bill. Read it as "nil tax if you stay within" rather than "the first ₹12 lakh is always free."
| New regime | Old regime | |
|---|---|---|
| Nil-tax up to | ₹12 lakh taxable income | ₹5 lakh taxable income |
| Maximum rebate | ₹60,000 | ₹12,500 |
| Standard deduction (salaried) | ₹75,000 | ₹50,000 |
| Who qualifies | Resident individuals | Resident individuals |
What happens just above the threshold?
Because the rebate switches off at the line, someone earning slightly over ₹12 lakh could, in theory, owe far more tax than a neighbour just under it – a cliff. The new regime softens this with marginal relief: it caps the extra tax so that a small rise in income above ₹12 lakh never costs you more than the income itself.
In other words, earn ₹10,000 over the threshold and your extra tax is held to about ₹10,000, not the full slab tax on your whole income. The relief only operates within a narrow band above the threshold. The mechanics, with a worked example, are laid out in the guide to marginal relief.
Who can claim the rebate?
Section 87A is narrow by design. It is available only to resident individuals – not to non-residents, HUFs, partnership firms or companies. Residential status is decided by how many days you spent in India during the year, so an otherwise-eligible person who has become a non-resident cannot claim it.
The rebate also generally applies to tax charged at the normal slab rates. Income taxed at special rates – long-term capital gains being the common example – is usually treated separately, and the rules here have shifted and been litigated. If part of your income is capital gains, that is a point to confirm against the current position rather than assume.
Related NYVO guides
- Marginal Relief: How It Softens the Rebate Cliff – what happens to your tax the moment income crosses the 87A threshold.
- Old vs New Tax Regime: How They Differ – the deductions-versus-lower-slabs trade-off that decides which 87A limit applies to you.
- Income Tax Slabs in India – the slabs that compute the tax the rebate then cancels.
Section 87A is the reason a whole band of taxpayers pays no income tax at all. Just remember what it is: a rebate that cancels the bill up to a line, not a slab that stays free once you pass it. The line, not the label, is what to watch.
