Section 87A rebate

Section 87A of the repealed Income-tax Act 1961 is now Section 156 of the Income-tax Act 2025: the Rs. 60,000 rebate, the Rs. 12 lakh ceiling, marginal relief.

Updated 20 September 2026

Key facts

Live provision: Section 156, Income-tax Act 2025, for the tax year 2026-27 onward
Repealed predecessor: Section 87A, Income-tax Act 1961, for the assessment year 2026-27 and earlier
Nature: A deduction from income-tax under Chapter IX, not from income
Default-regime rebate: Rs. 60,000 under Section 156(2)(a); nil tax up to a total income of Rs. 12,00,000
Old-regime rebate: Rs. 12,500 under Section 156(1); nil tax up to a total income of Rs. 5,00,000
Marginal relief: Section 156(2)(b); exhausted at a total income of Rs. 12,70,588
Salary equivalent: Rs. 12,75,000, after the Rs. 75,000 standard deduction at Section 19(1) Table serial 2
Eligibility: A resident individual only; not a non-resident, a Hindu Undivided Family, a firm or a company
Cap: Section 156(3) limits the deduction to the tax payable at Section 202(1) rates

The Section 87A rebate is the rebate of income-tax for a resident individual under the repealed Income-tax Act 1961, continued without change of substance as Section 156 of the Income-tax Act 2025, which cancels the tax on a total income up to Rs. 12,00,000 in the default regime and up to Rs. 5,00,000 in the old regime. It is the provision that makes a salary of Rs. 12,75,000 tax-free for a central government employee.

Section 536(1) of the Income-tax Act 2025 repealed the Income-tax Act 1961 with effect from 1 April 2026. Section 87A was repealed with it. Section 536(2)(c) keeps the repealed Act applicable to any tax year beginning before 1 April 2026, so Section 87A still governs the assessment year 2026-27 and every earlier year, while income earned from 1 April 2026 carries the rebate under Section 156.

The rebate is not an exemption, and the difference decides three separate questions. A deduction is subtracted from income before the rates apply; a rebate is subtracted from the tax after the rates apply. The Income-tax Act 2025 encodes the distinction in its chapter structure: Chapter III holds the exemptions, Chapter VIII the deductions, and Chapter IX, headed Rebates and reliefs, holds Sections 155 to 157. Nothing in the first Rs. 12,00,000 is exempt. The tax is computed on the whole slab ladder from Rs. 4,00,001 upward, and Section 156 then wipes out the result.

The choice between the two regimes is argued in the old versus new tax regime article and not repeated here.

Section 87A, Section 156 and the year each one governs

Two provisions are live at once, on different years, and citing the wrong one produces the right rupee figure with the wrong authority. Section 156 of the Income-tax Act 2025 charges the tax year 2026-27, running from 1 April 2026 to 31 March 2027, and every year after it. Section 87A of the repealed Income-tax Act 1961 governs the assessment year 2026-27, which is the financial year 2025-26, and every earlier year.

The two carry the same numbers, because the Income-tax Act 2025 restated Section 87A rather than rewriting it. Section 87A gave a resident individual a deduction of 100% of the income-tax or Rs. 12,500, whichever was less, where total income did not exceed Rs. 5,00,000, with a proviso inserted by the Finance Act 2023 giving the larger default-regime rebate and its taper. Section 156 splits that into sub-sections: 156(1) is the Rs. 12,500 limb, 156(2)(a) the Rs. 60,000 limb, 156(2)(b) the taper, and 156(3) the cap.

For a central government employee in September 2026 both matter. The return for the assessment year 2026-27, filed under the repealed Act, claims the rebate under Section 87A. The tax being deducted from the current month’s salary is computed under the Income-tax Act 2025 and takes the rebate under Section 156.

The rebate in the default regime

Section 156(2)(a) of the Income-tax Act 2025 allows a resident individual whose total income is chargeable under Section 202(1) a deduction of 100% of the income-tax payable or Rs. 60,000, whichever is less, where the income does not exceed Rs. 12,00,000. The effect is nil tax up to a total income of Rs. 12,00,000.

The Rs. 60,000 ceiling is not a round number chosen for presentation. It is the exact slab tax at Rs. 12,00,000 under the Section 202(1) Table, which charges nil up to Rs. 4,00,000, 5% from Rs. 4,00,001 to Rs. 8,00,000, 10% from Rs. 8,00,001 to Rs. 12,00,000, 15% from Rs. 12,00,001 to Rs. 16,00,000, 20% from Rs. 16,00,001 to Rs. 20,00,000, 25% from Rs. 20,00,001 to Rs. 24,00,000 and 30% above Rs. 24,00,000. 5% of the Rs. 4,00,000 in the second slab is Rs. 20,000, and 10% of the Rs. 4,00,000 in the third is Rs. 40,000. The two together are Rs. 60,000, and the rebate was set to cancel them exactly.

Below the ceiling the rebate is the smaller of the two limbs, so it tracks the tax rather than paying out the maximum. A resident with a total income of Rs. 9,00,000 has a slab tax of Rs. 30,000, being Rs. 20,000 plus 10% of Rs. 1,00,000, and the deduction under Section 156(2)(a) is Rs. 30,000, not Rs. 60,000.

The rebate in the old regime

Section 156(1) of the Income-tax Act 2025 allows a resident individual a deduction of 100% of the income-tax payable or Rs. 12,500, whichever is less, where the total income does not exceed Rs. 5,00,000. The sub-section is not written as an old-regime provision, but it is where the old regime is felt, because a taxpayer below Rs. 5,00,000 in the default regime already has the wider relief in Section 156(2)(a).

The Rs. 12,500 figure answers to the old-regime slab table in Paragraph A of Part I-B of the First Schedule to the Finance Act 2026, which charges nil up to Rs. 2,50,000, 5% from Rs. 2,50,001 to Rs. 5,00,000, Rs. 12,500 plus 20% from Rs. 5,00,001 to Rs. 10,00,000, and Rs. 1,12,500 plus 30% above Rs. 10,00,000. 5% of Rs. 2,50,000 is Rs. 12,500, so the rebate cancels the tax at Rs. 5,00,000 and the ceiling has not moved since the Finance Act 2019 set it.

Age changes the arithmetic without changing the rebate. Item (II) of that Paragraph gives a resident aged 60 or more but below 80 a nil band up to Rs. 3,00,000, so the tax at Rs. 5,00,000 is Rs. 10,000 and the deduction under Section 156(1) is Rs. 10,000. Item (III) gives a resident aged 80 or more a nil band up to Rs. 5,00,000, which leaves nothing for the rebate to cancel.

Marginal relief above Rs. 12 lakh

Section 156(2)(b) of the Income-tax Act 2025 caps the tax on a total income just above Rs. 12,00,000 at the amount by which the income exceeds Rs. 12,00,000. The sub-section applies where the total income exceeds Rs. 12,00,000 and the income-tax payable on it exceeds the excess, and it allows a deduction equal to the difference between the two. Without it, a rupee of income above the ceiling would cost Rs. 60,000 in tax.

Total income (Rs.)	Slab tax under Section 202(1) (Rs.)	Excess over Rs. 12,00,000 (Rs.)	Deduction under Section 156(2)(b) (Rs.)	Tax before cess (Rs.)
12,10,000	61,500	10,000	51,500	10,000
12,25,000	63,750	25,000	38,750	25,000
12,50,000	67,500	50,000	17,500	50,000
12,70,588	70,588	70,588	Nil in substance	70,588
12,80,000	72,000	80,000	Nil	72,000

Take the first row. The slab tax at Rs. 12,10,000 is Rs. 20,000 plus Rs. 40,000 plus 15% of the Rs. 10,000 falling in the fourth slab, which is Rs. 61,500. The excess over Rs. 12,00,000 is Rs. 10,000, so Section 156(2)(b) allows a deduction of Rs. 51,500 and the tax payable is Rs. 10,000, or Rs. 10,400 after the 4% Health and Education Cess charged by Section 3(15) of the Finance Act 2026.

The taper runs out where the slab tax equals the excess. Slab tax of Rs. 60,000 plus 15% of the excess equals the excess when the excess is Rs. 70,588, that is at a total income of Rs. 12,70,588, at which point the deduction has fallen to twenty paise and the ordinary tax applies. Above that income Section 156(2)(b) is unavailable, because the income-tax payable no longer exceeds the excess.

Two figures near Rs. 12.7 lakh are routinely confused. Rs. 12,70,588 is the total income at which marginal relief is exhausted. Rs. 12,75,000 is the gross salary at which the rebate itself runs out, one standard deduction higher up. They measure different quantities at different steps of the computation.

The old regime has no taper at all. Section 156(1) carries no limb answering to Section 156(2)(b), so a resident individual in the old regime with a total income of Rs. 5,00,010 loses the entire Rs. 12,500 at once and pays the ordinary slab tax of Rs. 12,502 plus cess, against nil ten rupees lower down.

Capital gains and other special-rate income

Section 156(3) of the Income-tax Act 2025 provides that the deduction under Section 156(2) shall not exceed the income-tax payable as per the rates provided in Section 202(1). That single sentence is the whole of the capital-gains exclusion. Section 156(2) opens by requiring the total income to be chargeable under Section 202(1), and Section 156(3) closes the point by measuring the deduction against the tax at those rates.

Special-rate income is charged elsewhere in the Act. Section 196 charges short-term capital gains on an equity share, a unit of an equity oriented fund or a unit of a business trust, where securities transaction tax has been paid, at 20%. Section 198 charges long-term capital gains on the same assets at 12.5% on the amount exceeding Rs. 1,25,000. Section 197 charges other long-term capital gains at 12.5%. None of that tax is payable at Section 202(1) rates, so the Rs. 60,000 ceiling has nothing to bite on in respect of it.

A worked case shows the size of the trap. A resident with a total income of Rs. 12,00,000, of which Rs. 4,00,000 is long-term capital gains on listed equity, pays Rs. 20,000 on the remaining Rs. 8,00,000 under the Section 202(1) Table and Rs. 34,375 on the gains, being 12.5% of Rs. 2,75,000 after the Rs. 1,25,000 threshold in Section 198(2)(a). The total tax is Rs. 54,375. The deduction under Section 156(2)(a) would be Rs. 54,375 on its own terms, but Section 156(3) caps it at Rs. 20,000, the tax payable at Section 202(1) rates. The liability is Rs. 34,375 plus 4% cess, Rs. 35,750 in all, on an income the taxpayer expected to be tax-free.

A separate relief does reach special-rate gains, and it is not the rebate. Section 198(3) provides that where the total income as reduced by the long-term capital gains falls short of the maximum amount not chargeable to income-tax, the gains are reduced by that shortfall before the 12.5% is applied, and Section 196(2) does the same for short-term gains. For a person taxed under Section 202(1) that maximum amount is Rs. 4,00,000, from serial 1 of the Section 202(1) Table. A pensioner with a total income of Rs. 5,00,000 made up of Rs. 2,00,000 of pension and Rs. 3,00,000 of long-term capital gains therefore reduces the gains by the Rs. 2,00,000 shortfall to Rs. 1,00,000, which is below the Rs. 1,25,000 threshold, and pays nothing. Both sub-sections are available to a resident individual and a resident Hindu Undivided Family only.

The gap between Rs. 12,00,000 and Rs. 12,75,000

Section 156(2)(a) of the Income-tax Act 2025 is written against total income, which is what remains after the head-level deduction has been taken, so the salary figure that corresponds to it is higher. Serial 2 of the Section 19(1) Table allows a standard deduction of Rs. 75,000 or the salary, whichever is less, where income-tax is computed under Section 202(1), and Rs. 50,000 or the salary, whichever is less, in any other case. A salary of Rs. 12,75,000 less Rs. 75,000 is a total income of Rs. 12,00,000, and the rebate cancels the Rs. 60,000 of tax on it.

Section 202(2)(a)(iv) removes only serial 1 of that Table, the deduction for a tax on employment under article 276(2) of the Constitution, so the standard deduction survives the default regime intact. That is why the Rs. 75,000 figure and the Rs. 12,00,000 ceiling can be added together at all.

The employer’s pension contribution lifts the salary figure further. Section 124(1)(a) allows a deduction of the employer contribution under a notified pension scheme up to 14% of salary where the employer is the Central Government or a State Government, and Section 202(2)(a)(xii) expressly preserves Sections 124(1) and 124(2) in the default regime. A central government employee whose employer pays 14% of basic pay and dearness allowance into the National Pension System therefore reaches a total income of Rs. 12,00,000 from a considerably larger gross figure, which is worked through in the take-home salary article.

Eligibility

Both limbs of Section 156 open on an assessee being an individual resident in India. Residence is the only personal condition. A non-resident cannot claim the rebate on Indian-source salary however small the total income, and a Hindu Undivided Family, a firm, an association of persons, a body of individuals, an artificial juridical person and a company are all outside the section, even though Section 202(1) charges several of them at the same slab rates.

Age is irrelevant to the rebate itself. A resident of any age qualifies, including a senior citizen and a super-senior citizen, although age changes the slab table in the old regime and so changes the amount the rebate has to cancel.

Position of the rebate in the computation

The order of steps is what makes the rebate worth more than a deduction of the same size. Income is computed under its heads with the Chapter III exemptions kept out; the heads are aggregated into gross total income; the Chapter VIII deductions reduce it to total income, subject to Section 122(2), which bars the aggregate exceeding gross total income; the Section 202(1) Table or the Finance Act 2026 rates produce the income-tax; Section 156 is deducted from that tax; any surcharge is added; and Section 3(15) of the Finance Act 2026 adds the 4% Health and Education Cess on the income-tax as increased by the surcharge.

Because the cess is charged on the post-rebate figure, a rebate that reduces the tax to nil leaves nothing for the 4% to attach to. The liability is nil, not small. An exemption or a deduction of the same rupee value reaches the cess only indirectly, by lowering the tax the cess is computed on.

The rebate cannot run past zero in either direction. Section 155(2) provides that the deduction under Section 156 shall not in any case exceed the income-tax chargeable on the total income, and Section 156(3) caps the Section 156(2) deduction again at the tax payable at Section 202(1) rates. An unused part of the Rs. 60,000 is not carried forward and does not become a refund. A refund arises only where tax has already been deducted at source or paid as advance tax.

Effect on tax deducted from salary

Section 392 of the Income-tax Act 2025 requires the person responsible for paying salary to deduct income-tax at the average rate on the estimated income of the tax year. The estimate is of tax, not of income, so the Section 156 rebate enters it. Where the projected total income of a central government employee is Rs. 12,00,000 or less in the default regime, the estimated tax after the Section 156(2)(a) rebate is nil and the drawing and disbursing officer deducts nothing.

The position corrects itself within the year rather than at the return. An employee whose pay rises mid-year past the ceiling has tax deducted over the remaining months, and one whose earlier estimate was too high has the excess adjusted against later months of the same tax year, which is set out in the TDS on salary article. Where the adjustment cannot be completed inside the year, the excess is claimed in the return, due by 31 July under serial 4 of the Section 263(1) Table.

Revisions to the rebate ceiling

The rebate has been raised five times since it was introduced, and since 2023 every increase has gone to the default regime alone.

Amending Act	First effective financial year	Income ceiling (Rs.)	Maximum rebate (Rs.)
Finance Act 2013	2013-14	5,00,000	2,000
Finance Act 2016	2016-17	5,00,000	5,000
Finance Act 2017	2017-18	3,50,000	2,500
Finance Act 2019	2019-20	5,00,000	12,500
Finance Act 2023	2023-24	7,00,000 (default regime)	25,000
Finance Act 2025	2025-26	12,00,000 (default regime)	60,000

The two most recent rows are recorded in the amendment footnotes to Section 87A itself. The Finance Act 2023, Act No. 8 of 2023, inserted the proviso with effect from 1 April 2024. The Finance Act 2025, Act No. 7 of 2025, substituted “twelve” for “seven” and “sixty” for “twenty-five” with effect from 1 April 2026, and inserted the second proviso capping the rebate at the tax payable at Section 115BAC(1A) rates, which is the sentence Section 156(3) now carries. The special-rate exclusion is therefore no older than the assessment year 2026-27 in express terms.

The old-regime figure has not moved since the Finance Act 2019 set it at Rs. 12,500 for a total income up to Rs. 5,00,000, and Section 156(1) carries it forward unchanged. Budget 2026 altered neither rebate, neither ceiling, the slab tables nor the standard deduction, so the tax year 2026-27 figures are the Finance Act 2025 figures continued under new numbering.

Frequently Asked Questions (FAQs)

Is Section 87A still in force?

No. Section 536(1) of the Income-tax Act 2025 repealed the Income-tax Act 1961 with effect from 1 April 2026, and Section 87A went with it. Section 536(2)(c) keeps the repealed Act applicable to any tax year beginning before 1 April 2026, so Section 87A still governs the assessment year 2026-27 and every earlier year, including a return or an assessment taken up after the repeal. Income earned from 1 April 2026 carries the rebate under Section 156 of the Income-tax Act 2025.

How much is the rebate for the tax year 2026-27?

In the default regime, Section 156(2)(a) of the Income-tax Act 2025 allows 100% of the income-tax payable or Rs. 60,000, whichever is less, where the income does not exceed Rs. 12,00,000. In the old regime, Section 156(1) allows 100% of the income-tax payable or Rs. 12,500, whichever is less, where the total income does not exceed Rs. 5,00,000.

Is income up to Rs. 12 lakh exempt?

No. It is taxed and then the tax is cancelled. Section 202(1) of the Income-tax Act 2025 charges 5% on the slab from Rs. 4,00,001 to Rs. 8,00,000 and 10% on the slab from Rs. 8,00,001 to Rs. 12,00,000, producing Rs. 60,000 of tax at a total income of Rs. 12,00,000, and Section 156(2)(a) then allows a deduction of that Rs. 60,000 from the tax. An exemption under Chapter III keeps income out of total income altogether; the rebate leaves the income in and removes the tax.

What happens to a total income just above Rs. 12 lakh?

Section 156(2)(b) of the Income-tax Act 2025 caps the tax at the amount by which the total income exceeds Rs. 12,00,000. At a total income of Rs. 12,10,000 the slab tax of Rs. 61,500 is reduced by a deduction of Rs. 51,500, leaving Rs. 10,000 plus 4% cess. The taper is exhausted at a total income of Rs. 12,70,588, where the slab tax and the excess over Rs. 12,00,000 converge.

Does the old regime have marginal relief on its Rs. 5 lakh ceiling?

No. Section 156(1) of the Income-tax Act 2025 carries no limb answering to Section 156(2)(b). A resident individual in the old regime with a total income of Rs. 5,00,010 loses the whole Rs. 12,500 and pays the ordinary slab tax under Paragraph A of Part I-B of the First Schedule to the Finance Act 2026. Marginal relief on the rebate exists only at the Rs. 12,00,000 ceiling in the default regime.

Does the rebate cover the tax on equity capital gains?

No. Section 156(3) of the Income-tax Act 2025 limits the deduction under Section 156(2) to the income-tax payable at Section 202(1) rates. Short-term capital gains on securities-transaction-tax-paid equity are charged at 20% under Section 196 and long-term capital gains at 12.5% above Rs. 1,25,000 under Section 198, neither at Section 202(1) rates, so the Rs. 60,000 rebate cannot be set against that tax. The exclusion is a consequence of how Section 156 is drafted, not a separate exclusion clause.

Can a resident use the basic exemption against capital gains?

Yes, and it is a different relief from the rebate. Section 198(3) of the Income-tax Act 2025 provides that where the total income as reduced by the long-term capital gains falls below the maximum amount not chargeable to income-tax, Rs. 4,00,000 under Section 202(1) Table serial 1, the gains are reduced by that shortfall before the 12.5% is applied. Section 196(2) does the same for short-term capital gains. The relief is available to a resident individual and a resident Hindu Undivided Family only.

What gross salary does the Rs. 12 lakh ceiling correspond to?

Rs. 12,75,000, because the Rs. 12,00,000 in Section 156(2)(a) of the Income-tax Act 2025 is total income, not salary. Section 19(1) Table serial 2 allows a standard deduction of Rs. 75,000 or the salary, whichever is less, where income-tax is computed under Section 202(1). A salary of Rs. 12,75,000 less Rs. 75,000 is a total income of Rs. 12,00,000. An employer contribution to the National Pension System, deductible up to 14% of salary under Section 124(1)(a), raises the gross figure further.

Can a Hindu Undivided Family or a non-resident claim the rebate?

No. Section 156(1) and Section 156(2) of the Income-tax Act 2025 both open on an assessee being an individual resident in India. A non-resident, a Hindu Undivided Family, a firm, an association of persons, a body of individuals and a company are outside both sub-sections. A resident of any age qualifies, including a senior citizen and a super-senior citizen.

Is the rebate applied before or after the cess?

Before. Section 155(1) of the Income-tax Act 2025 allows the Chapter IX deduction from income-tax as computed before allowing that deduction, and Section 3(15) of the Finance Act 2026 charges the 4% Health and Education Cess on the income-tax as increased by any surcharge. Where the rebate reduces the income-tax to nil, 4% of nil is nil, so the liability is genuinely nil rather than small.

Does an unused rebate come back as a refund?

No. Section 155(2) of the Income-tax Act 2025 provides that the deduction under Section 156 shall not in any case exceed the income-tax chargeable, and Section 156(3) caps the Section 156(2) deduction again at the tax payable at Section 202(1) rates. The rebate can bring the tax to nil and no further. A refund arises only from tax already deducted at source or paid as advance tax.

Does the rebate stop tax being deducted from salary?

Yes, once the projected liability is nil. Section 392 of the Income-tax Act 2025 requires the person paying salary to deduct tax at the average rate on the estimated income of the tax year, and an estimate that lands at or below a total income of Rs. 12,00,000 in the default regime produces an estimated tax of nil after the Section 156(2)(a) rebate. A drawing and disbursing officer who has already deducted in earlier months adjusts the excess against later months of the same tax year.

Does a pensioner get the rebate?

Yes, on the same terms. Pension from a former employer is charged under the head Salaries by Section 15(2) of the Income-tax Act 2025, so the Rs. 75,000 standard deduction at Section 19(1) Table serial 2 and the Section 156(2)(a) rebate both apply. A family pension is charged under income from other sources instead, with a deduction of one-third or Rs. 25,000, whichever is less, under Section 93(1)(d) where tax is computed under Section 202(1), and the rebate then applies to the tax on the resulting total income.

External references

References

Income-tax Act, 2025 (Act No. 30 of 2025), Chapter IX, Sections 155(1), 155(2), 156(1), 156(2)(a), 156(2)(b) and 156(3): the rebate, the cap at the income-tax chargeable, the marginal-relief limb, and the cap at Section 202(1) rates.
Income-tax Act, 2025, Section 202(1) Table: the seven-slab default-regime rate table, nil up to Rs. 4,00,000 and 30% above Rs. 24,00,000, and Section 202(2)(a)(iv) and 202(2)(a)(xii), which preserve the Section 19(1) Table serial 2 standard deduction and Sections 124(1) and 124(2).
Income-tax Act, 2025, Sections 196(1), 196(2), 197, 198(2) and 198(3): short-term capital gains at 20%, long-term capital gains at 12.5% above Rs. 1,25,000, and the absorption of the unused basic exemption by a resident.
Income-tax Act, 2025, Section 19(1) Table serial 2 (standard deduction of Rs. 75,000 or Rs. 50,000, or the salary, whichever is less), Section 124(1)(a) (employer pension contribution at 14% for a government employer), Section 93(1)(d) (family pension deduction) and Section 392 (deduction of tax from salary).
Income-tax Act, 2025, Section 536(1) (repeal of the Income-tax Act, 1961) and Section 536(2)(c) (continuation of the repealed Act for a tax year beginning before 1 April 2026).
Income-tax Act, 1961, Section 87A with its first proviso inserted by Act No. 8 of 2023 with effect from 1 April 2024, the substitutions of “twelve” for “seven” and “sixty” for “twenty-five” by Act No. 7 of 2025 with effect from 1 April 2026, and the second proviso inserted by the same Act.
Finance Act, 2026, Section 3(1) (charge of income-tax under the Income-tax Act 2025), Section 3(15) (Health and Education Cess at 4%), and Paragraph A of Part I-B of the First Schedule (the old-regime slab rates for individuals, senior citizens and super-senior citizens).
Earlier revisions of the rebate: Finance Act 2013 (Rs. 2,000), Finance Act 2016 (Rs. 5,000), Finance Act 2017 (Rs. 2,500 with a Rs. 3,50,000 ceiling) and Finance Act 2019 (Rs. 12,500 with a Rs. 5,00,000 ceiling).