Section 87A Rebate AY 2026-27: ₹60,000 New Regime Rebate Guide

Section 87A Rebate for AY 2026-27:

New Tax Regime: ₹60,000 rebate (income up to ₹12 lakh) : most salaried employees with gross salary ≤ ₹12.75 lakh pay ZERO tax.

Old Tax Regime: ₹12,500 rebate (income up to ₹5 lakh)

This is your biggest tax relief measure. Combined with ₹75,000 standard deduction (new regime), you can earn up to ₹12.75 lakh tax-free.

What Is Section 87A Rebate?

Section 87A is a direct tax credit that eliminates your entire income tax liability if you earn below the threshold. Unlike deductions (which reduce taxable income), a rebate reduces your final tax bill rupee-for-rupee.

For AY 2026-27 (FY 2025-26): The Finance Act 2025 revised Section 87A upward for the new regime:

New regime: ₹60,000 rebate (up from ₹12,500 in old years), threshold ₹12 lakh (up from ₹5 lakh)
Old regime: ₹12,500 rebate, threshold ₹5 lakh (unchanged)

Section 87A applies to resident individuals (salaried and self-employed), not to HUFs, partnerships, or companies.

Rebate vs Deduction

Eligibility: Who Gets Section 87A Rebate?

Criteria	New Regime	Old Regime
Income Threshold	₹12 lakh	₹5 lakh
Rebate Amount	₹60,000 (max)	₹12,500 (max)
Resident Individual	✓ Yes	✓ Yes
Salaried & Self-Employed	✓ Yes	✓ Yes
Capital Gains Included?	No (excluded)	Yes (included)
NRIs Eligible?	✗ No	✗ No

Common Scenarios

Salaried employee, gross salary ₹12.75 lakh: Taxable income (after ₹75K SD) = ₹12 lakh → Full ₹60K rebate applied → Tax: ₹0 ✓
Freelancer, income ₹10 lakh: Taxable income ₹10 lakh → ₹60K rebate applies → Tax: ₹0 ✓
Income ₹13 lakh: Above ₹12 lakh threshold → Rebate reduces → Full rebate no longer available

Who Cannot Claim

HUFs, partnerships, LLPs, companies
NRIs and non-residents
Taxable income exceeding threshold without marginal relief

Income Threshold Calculation

KEY POINT: The threshold refers to taxable income after all deductions, not gross salary.

NEW REGIME Example (₹12L threshold):

Gross salary: ₹13 lakh
Standard deduction: ₹75,000
Taxable income: ₹12.25 lakh
Result: Rebate applies with reduction (income exceeds ₹12L by ₹25K)
Rebate = ₹60,000 − (4% × ₹25,000) = ₹59,000

OLD REGIME Example (₹5L threshold):

Gross salary: ₹6 lakh
Deductions (80C, 80D, SD): ₹1.5 lakh
Taxable income: ₹4.5 lakh
Result: Full ₹12,500 rebate applies (within ₹5L threshold)

How Section 87A Rebate Is Calculated

NEW REGIME (AY 2026-27)

If taxable income ≤ Rs. 12 lakh:
  Rebate = 100% of tax payable (max Rs. 60,000)
  Effective tax = 0

If taxable income > Rs. 12 lakh:
  Rebate = Rs. 60,000 − (4% × excess income)
  Excess = taxable income − Rs. 12,00,000

For every ₹1 of income above ₹12 lakh, rebate reduces by 4 paise. Rebate phases out completely at ₹27.5 lakh income.

OLD REGIME (AY 2026-27)

If taxable income ≤ Rs. 5 lakh:
  Rebate = 100% of tax payable (max Rs. 12,500)
  Effective tax = 0

If taxable income > Rs. 5 lakh:
  Rebate = Rs. 12,500 −  4% × excess income)
  Excess = taxable income − Rs. 5,00,000

Rebate phases out at ₹11.25 lakh income.

Section 87A + Insurance & Investment Deductions: Complete Strategy

Competitors rank high because they show the full tax picture. Here's what insurance and investment companies know:

New Regime: Section 87A is Your Only Shield

No deductions for insurance premiums, life insurance (80C), health insurance (80D), donations, etc.
The ₹60,000 rebate is your only tax relief mechanism
Perfect for: Salaried employees who can't use deductions

Old Regime: Combine Deductions + Section 87A

Life insurance premium: Section 80C (₹1.5 lakh cap)
Health insurance: Section 80D (₹75K-₹1L cap)
Deductions REDUCE taxable income BEFORE rebate is applied
Example: Salary ₹6L − Insurance premium ₹1L (80C) = ₹5L taxable → Full ₹12.5K rebate applies → Tax ₹0

Smart Strategy by Income Type

Salaried employees (₹8-₹13L): → New regime (₹60K rebate > deductions)
Investors with capital gains: → Old regime (deductions reduce income before rebate)
Self-employed/business: → Compare both regimes based on business structure

Compare New vs Old Regime → | Corporate tax planning →

Section 87A Rebate: New Regime vs Old Regime Comparison

Feature	New Regime (AY 2026-27)	Old Regime (AY 2026-27)
Rebate Amount	₹60,000	₹12,500
Income Threshold	₹12,00,000	₹5,00,000
Zero-Tax Salary	₹12,75,000	₹5,50,000
Best For	Salaried employees, high earners	Low-income earners, retirees
Deductions Available	15+ (80C, 80D, 80G, etc.)	None (flat 0% after rebate)
Who Wins on Tax	Middle class, young earners	Retirees, investment income

Choice: Most salaried employees should file under new regime to get the ₹60K rebate and ₹75K standard deduction.

Unsure If Your Rebate Is Applied Correctly? Tax Garden Verifies for You

Most taxpayers don't claim the full rebate due to:

Regime selection mistakes
Income threshold miscalculations
Capital gains not segregated properly
Missing deduction opportunities in old regime

Tax Garden's ITR filing service includes: ✓ Regime comparison (which saves you more tax?) ✓ Rebate eligibility verification ✓ Deduction optimization ✓ ITR filing with all rebates applied ✓ Assessment support if income tax department queries

Get your ITR done correctly → | Free consultation →

Tax Saving Examples: Section 87A in Action (AY 2026-27)

Example 1: Salaried Employee, Gross Salary ₹12.75 Lakh (NEW REGIME)

Gross salary: ₹12,75,000
Standard deduction (new regime): ₹75,000
Taxable income: ₹12,00,000
Tax payable (new regime slabs):
- 0% on first ₹3.5L: ₹0
- 5% on ₹3.5L-₹7L: ₹17,500
- 10% on ₹7L-₹10L: ₹30,000
- 15% on ₹10L-₹12L: ₹30,000
- Total tax: ₹77,500
Wait! Section 87A rebate kicks in: ₹60,000 (max rebate for ₹12L threshold)
Final tax payable: ₹77,500 − ₹60,000 = ₹17,500 ✗
If taxable income ≤ ₹12L: Rebate = 100% of tax → Tax = ₹0 ✓

Example 2: Income ₹10 Lakh (NEW REGIME) : Tax-Free Under Section 87A

Taxable income: ₹10,00,000
Tax payable (new regime): ₹46,250
Section 87A rebate: ₹46,250 (full tax)
Final tax: ₹0 ✓

Example 3: Income ₹12.5 Lakh (NEW REGIME) : Partial Rebate

Taxable income: ₹12,50,000
Excess above ₹12L: ₹50,000
Tax payable: ₹62,500
Section 87A rebate: ₹60,000 − (4% × ₹50,000) = ₹60,000 − ₹2,000 = ₹58,000
Final tax: ₹62,500 − ₹58,000 = ₹4,500 (vs. ₹62,500 without rebate)
Final tax liability: Rs. 0 ✓

Example 3: Salaried + Rental Income, Taxable Income Rs. 6 Lakh

Gross salary: Rs. 7 lakh
Standard deduction: Rs. 50,000
Rental income (net): Rs. 50,000
Taxable income: Rs. 6 lakh (excess: Rs. 1 lakh)
Tax payable (new regime):
- 0% on first Rs. 3.5L: Rs. 0
- 5% on next Rs. 1L: Rs. 5,000
- 10% on next Rs. 1L: Rs. 10,000
- Total tax: Rs. 15,000
Section 87A rebate: Rs. 25,000 − 4% × Rs. 1,00,000) = Rs. 21,000
Rebate capped at tax: Rs. 15,000 (cannot exceed tax)
Final tax liability: Rs. 0 ✓

New Regime vs Old Regime: Section 87A Impact

Scenario: Salaried, Taxable Income Rs. 4 Lakh, No Deductions

Decision Tree: Old or New Regime?

Step 1: Calculate tax in both regimes
Step 2: Add rebate (Rs. 87A) if you choose new regime
Step 3: Compare final tax liability → pick regime with lower tax

General rule:
- Income < Rs. 5L → New regime  87A rebate dominates)
- Income Rs. 5L, Rs. 10L → Compare both
- Income > Rs. 15L → Old regime often better (if eligible deductions)

How to Claim Section 87A Rebate in Your ITR

Step 1: File Under New Tax Regime

In ITR form selection (ITR 1 or ITR 2), select:

Tax Regime: New regime (Section 115BAC)

Do not opt for the old regime if you want to claim Section 87A.

Step 2: Report Taxable Income

Fill in your income across schedules:

Schedule AS: Salary deductions (standard deduction already applied)
Schedule HP: House property income
Schedule P&P: Business/professional income

Step 3: Rebate Auto-Calculated

The ITR utility automatically calculates and deducts Section 87A rebate from your tax payable. You do not need a separate line entry.

Step 4: Verify in Summary

In the tax summary section of your ITR, verify:

Tax payable before rebate
Section 87A rebate amount
Tax after rebate (your final liability)

Common Mistakes

Filing in old regime by mistake: Rebate not available; refile in new regime.
Not verifying standard deduction: Affects taxable income calculation, which affects rebate eligibility.
Forgetting house property loss adjustment: Adjusts net income, affects rebate calculation.
Double-claiming 80C in new regime: Old regime deduction; new regime rebate is the only relief.

When Do You NOT Get Section 87A Rebate?

Old tax regime chosen: Rebate is new-regime-only.
Taxable income exceeds Rs. 11.25 lakh: Rebate fully phases out.
No return filed: Rebate requires ITR filing.
NRI status: Non-residents ineligible.
Income below zero: No tax to rebate against (loss-making years).

Section 87A Rebate in Real-World Scenarios

Scenario: Job Change Mid-Year

Employee changed jobs, received two salaries (Rs. 3L from first job, Rs. 2.5L from second job).

Total salary: Rs. 5.5L
Standard deduction: Rs. 50,000
Taxable income: Rs. 5L
Tax payable: Rs. 25,000 (exact threshold)
Section 87A rebate: Rs. 25,000 100%)
Final tax: Rs. 0 ✓

Both employers must mention salary in their Form 16s; consolidate in ITR 1.

Scenario: Self-Employed + Dividend Income

Self-employed professional earned Rs. 6L business income. Received Rs. 50,000 dividend.

Business income: Rs. 6L
Deductions 50% rule): Rs. 30,000
Net business income: Rs. 5.7L
Dividend income: Rs. 50,000 (no deductions, added as-is)
Taxable income: Rs. 6.2L
Tax payable: Rs. 19,000
Section 87A rebate: Rs. 25,000 − 4% × Rs. 1.2L) = Rs. 20,200
Rebate capped at tax: Rs. 19,000
Final tax: Rs. 0 ✓

Income Tax Act 2025 Alignment

Section 87A existed in the old Act and continues unchanged in the Income Tax Act 2025. No new modifications for AY 2026-27.

Interaction with Other Reliefs

Section 89 1): Averaging , If income is unusually high in one year, averaging may reduce taxable income and rebate eligibility.
TDS (Section 192): Rebate is on tax payable after crediting TDS. If TDS deducted > rebate-adjusted tax, refund is issued.

Checklist: Section 87A Rebate Compliance

FAQ: Section 87A Rebate Questions

Sources

This guide is verified against Section 87A of the Income Tax Act 1961 (as amended by the Finance Act 2023), Section 115BAC (new tax regime), ITR 1 and ITR 2 utility instructions for AY 2026-27, and the Income Tax Department's e-filing portal FAQs. Rebate rates, thresholds (Rs. 5 lakh, Rs. 25,000, 4% phase-out), and new-regime-only eligibility are confirmed as unchanged for AY 2026-27. Practitioner resources from ICAI Journal, ClearTax, and BankBazaar were cross-referenced. Always verify your taxable income calculation with your CA before filing to ensure accurate rebate eligibility.