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    Section 87A rebate (87A)

    Section 87A is the rebate that wipes out tax for lower-income individuals. Under the new regime it is Rs 60,000, making total income up to Rs 12 lakh tax-free, with marginal relief just above that line. Under the old regime it is Rs 12,500, covering income up to Rs 5 lakh. Two important limits: the rebate does not apply to special-rate income (equity gains, lottery, crypto), and only individuals (not HUFs or firms) can claim it. It is the single biggest reason the new regime now wins for most people.

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    What this relief is, in plain English

    Think of 87A as a discount that cancels your tax bill entirely if your income is below the threshold. Under the new regime the discount is large (Rs 60,000), so anyone with total income up to Rs 12 lakh pays nothing, and marginal relief softens the edge just above Rs 12 lakh so there is no cliff. Under the old regime the discount is smaller (Rs 12,500) and the threshold lower (Rs 5 lakh). The catch is that it only cancels normal-slab tax, not the special flat rates on equity gains, lottery winnings or crypto, and it is for individuals only, an HUF cannot claim it.

    How it works

    New regime: Rs 12 lakh tax-free

    If your total income under the new regime is up to Rs 12 lakh, the Rs 60,000 rebate cancels the tax entirely. For a salaried person the Rs 75,000 standard deduction lifts the effective tax-free salary to about Rs 12.75 lakh. Marginal relief applies just above Rs 12 lakh, so a small overshoot only costs roughly the excess, not a full slab jump.

    Old regime: Rs 5 lakh tax-free

    Under the old regime the rebate is Rs 12,500, covering total income up to Rs 5 lakh. Above Rs 5 lakh the old-regime rebate is not available, so the comparison with the new regime's far higher Rs 12 lakh threshold usually favours the new regime for the mass middle.

    What it does not cover

    The rebate cancels normal-slab tax only. It does not apply to special-rate income: long-term equity gains (112A), short-term equity gains (111A), lottery and gambling (115BB) and crypto/VDA (115BBH). So someone just under Rs 12 lakh whose income includes such gains still pays tax on the special-rate part.

    Who qualifies

    Interactions with other reliefs

    New vs old regime

    The Rs 60,000 new-regime rebate is the main reason the new regime wins for most people

    Capital gains (112A/111A)

    Equity gains are excluded from the rebate, so they are taxed even below the threshold

    Crypto (115BBH)

    Crypto gains are special-rate and excluded from the rebate

    Common mistakes + audit triggers

    Worked example

    Neha, Pune - salaried professional with a small equity gain (2026-27)

    Neha has Rs 11.5 lakh of salary income and Rs 2 lakh of long-term equity gains in the year, and is on the new regime.

    Calculation: Her salary, after the Rs 75,000 standard deduction, is about Rs 10.75 lakh, within the Rs 12 lakh threshold, so the Rs 60,000 rebate cancels the normal-slab tax on it: nil. But her Rs 2 lakh equity gain is special-rate income (112A): the first Rs 1.25 lakh is exempt and the remaining Rs 75,000 is taxed at 12.5% (about Rs 9,375 plus cess), because the 87A rebate does not cover special-rate income. So she pays only on the equity gain, not the salary.

    Statute reference: Income-tax Act 2025 s.156 (Income-tax Act 1961 s.87A) s.87A; excludes s.112A/111A/115BB/115BBH special-rate income. Source / notes: s.87A confirmed as s.156 of the 2025 Act, effective 1 April 2026; marginal relief applies in the new regime.

    Frequently asked questions

    Is income up to Rs 12 lakh really tax-free?+
    Under the new regime, yes, for normal-slab income. The Rs 60,000 rebate under Section 87A cancels the tax on total income up to Rs 12 lakh, and a salaried person's Rs 75,000 standard deduction lifts the effective tax-free salary to about Rs 12.75 lakh. Special-rate income such as equity or crypto gains is not covered by the rebate.
    Does the rebate cover my capital gains?+
    No. The 87A rebate cancels normal-slab tax only. It does not apply to special-rate income: long-term equity gains (112A), short-term equity gains (111A), lottery and gambling (115BB), or crypto and other VDAs (115BBH). So even if your total income is below the threshold, you still pay the flat rate on those gains.
    What happens just above Rs 12 lakh?+
    Marginal relief applies in the new regime, so a small amount of income just over Rs 12 lakh does not trigger a sudden large tax bill. The tax is limited to roughly the amount by which your income exceeds Rs 12 lakh (plus cess), rather than the full slab tax, removing the cliff effect at the threshold.
    Can an HUF claim the 87A rebate?+
    No. Section 87A is available only to resident individuals, not to a Hindu Undivided Family, a firm or a company. An HUF computing its tax cannot reduce it with the 87A rebate, which is a point families using an HUF for tax planning sometimes miss.

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