Section 87A provides a full tax rebate that effectively makes certain taxpayers pay zero income tax-even if their income is above the basic exemption limit. This is one of the most important but frequently misunderstood provisions in the Income Tax Act.

How Section 87A Works

If your net taxable income does not exceed the specified threshold, the entire income tax computed is rebated back to zero. You owe no income tax at all.

Thresholds for AY 2025-26 and AY 2026-27

  • Old Tax Regime: Rebate of \u20b912,500 if total income \u2264 \u20b95,00,000. Tax payable = 0.
  • New Tax Regime (AY 2025-26): Rebate of \u20b925,000 if total income \u2264 \u20b97,00,000. Tax payable = 0.
  • New Tax Regime (AY 2026-27): Rebate of \u20b960,000 if total income \u2264 \u20b912,00,000. Tax payable = 0.

Important: The Marginal Relief

If your income slightly exceeds the threshold, you get marginal relief-the excess tax is capped at the amount by which your income exceeds the limit. Example: If income = \u20b912,10,000 under new regime (AY 2026-27), you pay only \u20b910,000 extra tax, not the full computed tax.

What Counts Toward the \u20b912 Lakh Limit?

Net taxable income after all deductions (standard deduction, NPS employer contribution, etc.) but before the Section 87A rebate itself. If this figure is \u20b912 lakh or below (new regime), you pay zero tax.

LTCG and Section 87A

From FY 2024-25, long-term capital gains taxed at special rates are not eligible for Section 87A rebate even if total income is below the threshold. This is a recent judicial and administrative clarification to be aware of.

Use the SaveTaxNow Calculator to check whether your restructured salary brings you under the 87A rebate threshold.