What Section 87A actually does
Section 87A is the single reason a middle-class salary can attract zero income tax. It's a rebate — a straight reduction in the tax you'd otherwise owe — and for FY 2025-26 it's more generous than it has ever been under the new regime.
Here's the key point people miss: the rebate doesn't lower your income or your slab. Your tax is worked out normally, and then, if you qualify, 87A knocks the whole thing down to zero. That's why the slab table can show tax building up from ₹4 lakh, yet you still pay nothing until you cross the rebate limit.
The rebate limits for FY 2025-26
| Regime | Zero-tax up to (taxable income) |
|---|---|
| New regime | ₹12,00,000 |
| Old regime | ₹5,00,000 |
Under the new regime, a resident individual with taxable income up to ₹12 lakh pays no tax at all. Add the ₹75,000 standard deduction and a salaried person earning about ₹12.75 lakh walks away paying nothing.
Marginal relief — the clever safety net
Cross ₹12 lakh by a rupee and you might expect to suddenly owe tax on the whole amount. Marginal relief stops that cliff. It caps your tax so you never pay more in tax than the amount by which your income exceeds ₹12 lakh. So at ₹12,10,000 your tax is a gentle ₹10,000-ish, not a jarring ₹60,000.
Set the salary to just above ₹12.75 lakh on the calculator and watch the tax rise smoothly — that's marginal relief working behind the scenes.
Who can claim it
- You must be a resident individual — HUFs, firms and companies can't claim 87A.
- Your taxable income (after deductions) must be within the limit for your regime.
- It applies after deductions but before cess is added.
Related reading
Frequently asked questions
What is the Section 87A rebate limit for FY 2025-26?
Under the new regime, taxable income up to 12,00,000 gets full rebate and pays zero tax. Under the old regime the limit is 5,00,000.
Is the 87A rebate available in both regimes?
Yes, but the limit differs — 12 lakh under the new regime and 5 lakh under the old regime for FY 2025-26.
Does the rebate apply before or after cess?
The rebate is applied to the tax first, and the 4% health and education cess is calculated on whatever tax remains after the rebate.