Section 87A provides a full rebate on income tax for individuals whose net taxable income does not exceed a specified threshold. Union Budget 2025 dramatically increased this rebate limit to ₹12 lakh under the New Regime, making it the most impactful change for middle-class taxpayers. Combined with the ₹75,000 standard deduction, salaried individuals with gross income up to ₹12.75 lakh pay zero tax.
Budget 2025 Update (New Regime)
- Rebate limit increased from ₹7 lakh to ₹12 lakh
- If taxable income ≤ ₹12,00,000: tax payable = ₹0
- With standard deduction of ₹75,000: Gross salary up to ₹12,75,000 = zero tax
- Maximum rebate amount: ₹60,000 (tax on ₹12 lakh as per new slabs)
Old Regime (Unchanged)
- Rebate limit: ₹5 lakh (unchanged since FY 2023-24)
- If taxable income ≤ ₹5,00,000: tax payable = ₹0
- Maximum rebate: ₹12,500
Marginal Relief
- For income just above ₹12 lakh (say ₹12.1 lakh), 87A rebate does NOT apply
- Without marginal relief, tax would jump to ₹61,500 on ₹12.1 lakh income
- Marginal relief ensures tax does not exceed income − ₹12,00,000
- So for ₹12.1 lakh income: tax capped at ₹10,000 (= 12.1L − 12L)
- This applies up to approximately ₹12.75 lakh (point where marginal relief no longer applies)
Important Conditions
- Available only to resident individuals (not HUF, firms, companies)
- NOT available on special rate incomes like STCG (Section 111A), LTCG (Section 112A)
- Applies on the remaining tax after computing on all income; special rate incomes are excluded
- Available on total income including capital gains — but rebate applies only to non-special-rate portion of tax
This guide reflects FY 2025-26 (AY 2026-27) and is for general information. Tax rules and limits change, and how they apply depends on your circumstances. It is not professional tax advice; consult a qualified Chartered Accountant before acting.
