Section 87A Rebate Explained: New vs Old Regime, 2026-27
Section 87A rebate (now Section 156) for 2026-27: ₹60,000 in the new regime, ₹12,500 in the old, marginal relief, and why capital gains still get taxed.
In this article
The Section 87A rebate is a tax credit that wipes out slab tax for lower and middle incomes. As of October 2026, a resident individual with total income up to ₹12 lakh in the new regime gets a rebate of up to ₹60,000, and up to ₹12,500 for income up to ₹5 lakh in the old regime. From 1 April 2026 the rebate lives in Section 156 of the Income-tax Act, 2025. The catch: in the new regime it covers only tax on slab-rate income, so capital gains taxed at special rates can leave you with a bill even below ₹12 lakh.
Our article on income tax slabs for FY 2026-27 covers the full rate table. This one is about the rebate alone: who gets it, what it covers, and where people get caught out.
How the rebate works
The rebate is applied after tax is computed, not as a deduction from income. The sequence is:
- Work out total income, including capital gains and other special-rate income.
- Check that total income is within the limit: ₹12 lakh (new regime) or ₹5 lakh (old regime).
- Compute tax on that income.
- Subtract the rebate, up to the cap, but not more than the tax that the rebate is allowed to cover.
- Add 4% health and education cess on whatever is left.
If tax on slab income is ₹45,000 in the new regime, the rebate is ₹45,000, not ₹60,000. The cap is a ceiling, not a fixed amount.
New regime vs old regime rebate (as of October 2026)
| Feature | New regime (Section 202, old 115BAC) | Old regime |
|---|---|---|
| Income limit | Total income up to ₹12 lakh | Total income up to ₹5 lakh |
| Maximum rebate | ₹60,000 | ₹12,500 |
| Salaried equivalent | About ₹12.75 lakh salary (after ₹75,000 standard deduction) | About ₹5.5 lakh salary before other deductions (after ₹50,000 standard deduction) |
| Marginal relief just above the limit | Yes | No |
| Covers tax on equity STCG (old Section 111A, now Section 196) | No | Yes |
| Covers tax on equity LTCG (old Section 112A, now Section 198) | No | No |
| Who can claim | Resident individuals only | Resident individuals only |
The ₹60,000 figure is exactly the slab tax on ₹12 lakh: ₹20,000 (5% on ₹4-8 lakh) plus ₹40,000 (10% on ₹8-12 lakh). That is why ₹12 lakh of taxable income comes out at nil tax. Under the old regime with large deductions, the ₹5 lakh limit is tested on income after deductions, so a gross salary well above ₹5.5 lakh can still qualify.
Who cannot claim it
- Non-residents, whatever their income
- HUFs, firms and companies: the rebate is only for individuals
- Anyone whose total income crosses the limit, even by ₹1, unless marginal relief applies in the new regime
Your residential status is decided each year. See our guide to tax residency and NRI status if you split time between India and abroad.
Marginal relief above ₹12 lakh (new regime only)
Without relief, ₹12,10,000 of income would mean ₹61,500 of tax, more than the extra ₹10,000 earned. Marginal relief caps the tax at the amount by which income exceeds ₹12 lakh.
The relief fades out at about ₹12,70,588 of taxable income, where normal slab tax (₹60,000 + 15% of the excess) equals the excess. For salaried people that is roughly ₹13.46 lakh of salary. The old regime has no equivalent: at ₹5,10,000 you pay full slab tax of ₹14,500 plus cess.
Special-rate income: the part most people miss
The Finance Act, 2025 added a condition to the new-regime rebate from FY 2025-26: it cannot exceed the tax computed at slab rates. The Income-tax Act, 2025 carries this forward in Section 156. Before that, there was litigation. The Bombay High Court allowed the rebate against short-term equity gains for an earlier year, and a 2026 tribunal ruling treated the restriction as applying only from FY 2025-26. As of October 2026, for tax year 2026-27, the restriction is in the law.
Income taxed at special rates includes:
- Short-term gains on listed equity and equity funds (20%)
- Long-term gains on listed equity and equity funds above ₹1.25 lakh a year (12.5%)
- Other long-term capital gains, such as on property or gold (12.5%)
- Lottery, game show and online gaming winnings (30%)
- Gains on crypto and other virtual digital assets (30%)
All of these count towards the ₹12 lakh limit, but tax on them is not covered by the rebate. Our guide to capital gains tax on mutual funds explains the rates.
Worked examples (tax year 2026-27, illustrative)
Example 1: salary only
Neha's salary is ₹12,75,000. After the ₹75,000 standard deduction, taxable income is ₹12,00,000. Slab tax is ₹60,000, the rebate is ₹60,000, and tax is nil.
Example 2: salary plus short-term equity gains
Vikram's taxable salary is ₹11,00,000 and he books ₹1,00,000 of short-term gains on equity funds. Total income is ₹12,00,000, within the limit.
| Item | Tax |
|---|---|
| Slab tax on ₹11 lakh salary: ₹20,000 + 10% of ₹3 lakh | ₹50,000 |
| Rebate (limited to slab tax) | −₹50,000 |
| STCG at 20% on ₹1 lakh | ₹20,000 |
| Cess at 4% | ₹800 |
| Tax payable | ₹20,800 |
Example 3: salary plus long-term equity gains
Farah's taxable salary is ₹8,00,000 and she has ₹2,00,000 of long-term gains on equity shares. Total income is ₹10,00,000.
- Slab tax on ₹8 lakh is ₹20,000, fully covered by the rebate
- LTCG: the first ₹1.25 lakh is exempt, so 12.5% × ₹75,000 = ₹9,375
- Add cess of ₹375: tax payable ₹9,750
Example 4: just over the limit
Sameer's taxable income is ₹12,20,000, all from salary. Slab tax is ₹63,000 (₹60,000 + 15% of ₹20,000). Marginal relief caps it at ₹20,000, so with cess he pays ₹20,800, not ₹65,520.
Example 5: old regime
Lata, a pensioner in the old regime, has taxable income of ₹5,00,000 after deductions. Tax is ₹12,500 (5% on ₹2.5-5 lakh), the rebate is ₹12,500, and tax is nil. At ₹5,10,000 she would pay ₹14,500 plus cess, or ₹15,080, because the old regime has no marginal relief.
Run your own figures through our income tax calculator to see where you land.
Practical ways to use the rebate well
- Spread equity redemptions. If your slab income is near ₹12 lakh, booking gains in a year when they stay within the ₹1.25 lakh LTCG exemption avoids tax that the rebate cannot touch.
- Do not assume "under ₹12 lakh means no return." If total income is above the basic exemption of ₹4 lakh, you generally still need to file, even when tax is nil after rebate.
- Check your employer's TDS. Employers apply the rebate and marginal relief while computing salary TDS. If you have capital gains or other income, declare it or keep cash aside for tax at filing.
- Compare regimes every year. The ₹60,000 rebate makes the new regime hard to beat for most salaries up to about ₹13.5 lakh. Our new vs old tax regime guide has breakeven numbers.
Key takeaways
- As of October 2026, the rebate is in Section 156 of the Income-tax Act, 2025 (old Section 87A).
- New regime: up to ₹60,000 for total income up to ₹12 lakh, with marginal relief to about ₹12.71 lakh. Old regime: up to ₹12,500 for income up to ₹5 lakh, with no marginal relief.
- Only resident individuals can claim it.
- In the new regime the rebate covers only slab-rate tax. Tax on capital gains, lottery winnings and crypto is payable even below ₹12 lakh.
- Capital gains still count towards the income limit, so a large gain can push you out of the rebate altogether.
Frequently asked questions
What is the Section 87A rebate for FY 2026-27?
Under the new regime, a resident individual with total income up to ₹12 lakh gets a rebate of up to ₹60,000, which makes slab tax nil. Under the old regime, the rebate is up to ₹12,500 for total income up to ₹5 lakh. From 1 April 2026 this rebate sits in Section 156 of the Income-tax Act, 2025.
Is the 87A rebate available on capital gains?
In the new regime, no. From FY 2025-26 the rebate is limited to tax on slab-rate income, so tax on equity short-term gains, long-term gains above ₹1.25 lakh and other special-rate income is payable even if total income is under ₹12 lakh. In the old regime the rebate is not available against tax on equity long-term gains.
Do NRIs get the 87A rebate?
No. The rebate is only for resident individuals. NRIs, HUFs and firms cannot claim it, whatever their income.
What happens if my income is slightly above ₹12 lakh?
In the new regime, marginal relief caps your tax at the amount by which income exceeds ₹12 lakh. It stops applying at about ₹12.71 lakh of taxable income. The old regime has no such relief above ₹5 lakh.
Does the rebate reduce my taxable income?
No. The rebate is deducted from the tax computed, not from income. Your total income stays the same and is still used to test the ₹12 lakh or ₹5 lakh limit.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 21 Oct 2026; confirm current terms with your lender, AMC or a qualified adviser.
