Section 87A rebate
Also written Rebate under section 87A · 87A rebate
A tax rebate for resident individuals with total income below a threshold — up to Rs 12,500 (old regime, Rs 5 lakh), and under the new regime up to Rs 25,000 (Rs 7 lakh) or Rs 60,000 (Rs 12 lakh from FY 2025-26).
In plain language
A rebate is not a deduction. A deduction reduces income before tax is calculated; a rebate reduces the tax itself after it has been calculated.
Section 87A gives resident individuals with modest total income a rebate that, up to the threshold, wipes out the tax on their normal income entirely. That is why someone earning Rs 12 lakh under the new regime from FY 2025-26 can end up paying no income tax, even though the slab table charges tax from Rs 4 lakh upward.
It is available only to resident individuals, and it does not reduce tax on long-term capital gains under Section 112A.
How it works
The thresholds in the workbook:
| Regime and year | Total income up to | Rebate up to |
|---|---|---|
| Old regime | Rs 5,00,000 | Rs 12,500 |
| New regime (Section 115BAC), from AY 2024-25 | Rs 7,00,000 | Rs 25,000 |
| New regime, from FY 2025-26 (AY 2026-27) | Rs 12,00,000 | Rs 60,000 |
The rebate is the stated maximum or the actual tax, whichever is lower.
Marginal relief is allowed under the new regime when total income just exceeds the threshold: tax payable is limited to the amount by which income exceeds Rs 7,00,000 (FY 2024-25) or Rs 12,00,000 (FY 2025-26).
Not against Section 112A. The rebate is not available from tax on long-term capital gains under Section 112A — equity shares, equity-oriented fund units, certain ULIPs, business trust units — nor on tax on accumulated recognised PF balances under Section 111. It is allowed from tax on total income as reduced by the tax on such gains.
Workbook Caselet 3, FY 2024-25.
| X (old regime) | A (new regime) | |
|---|---|---|
| Income other than special-rate income | 3,75,000 | 5,25,000 |
| Less: 80C (PPF) | (50,000) | — |
| Net total income | 3,25,000 | 5,25,000 |
| Tax at 12.5% u/s 112A (LTCG above Rs 1,25,000) | 5,625 | 6,250 |
| Tax on remaining income | 3,750 | 11,250 |
| Rebate u/s 87A | 3,750 | 11,250 |
The rebate wipes out the tax on normal income but not the Rs 5,625 and Rs 6,250 on equity LTCG.
A worked example
Workbook Caselet 4 — marginal relief.
| FY 2024-25 | FY 2025-26 | |
|---|---|---|
| Total income | Rs 7,10,000 | Rs 12,20,000 |
| Income above threshold | Rs 10,000 | Rs 20,000 |
| Income tax (workbook) | Rs 21,000 | Rs 61,500 |
| Marginal relief (workbook) | Rs 11,000 | Rs 41,500 |
| Net tax payable | Rs 10,000 | Rs 20,000 |
The logic: a person who earns Rs 20,000 more than the threshold should not pay more than Rs 20,000 of extra tax. Tax is capped at the excess income.
Check the FY 2025-26 tax line against the workbook's own slab table (Annexure 1). On Rs 12,20,000: 5% on Rs 4–8 lakh = Rs 20,000; 10% on Rs 8–12 lakh = Rs 40,000; 15% on the Rs 20,000 above Rs 12 lakh = Rs 3,000. Total Rs 63,000, not Rs 61,500. Marginal relief is then Rs 43,000, and net tax payable is still Rs 20,000 — so the final answer is unaffected.
Where relief runs out. The workbook says relief applies for incomes up to about Rs 7,28,000 (FY 2024-25) and Rs 12,71,250 (FY 2025-26). Using its own slab rates and ignoring cess, tax equals the excess income at about Rs 7,22,222 (20,000 + 10% of the excess) and Rs 12,70,588 (60,000 + 15% of the excess). Treat the workbook's figures as approximate; the rule — tax capped at income above the threshold — is what matters.
Why NISM asks about it
Chapter 7 (Concepts of Taxation), section 7.11 — Rebate under section 87A — with slab rates in Annexure 1; Chapter 11, section 11.9.1, on the rebate not being available against Section 112A tax; Chapter 13 Caselets 3 and 4. Expect the three thresholds and maximum rebates, the marginal relief computation, and the 112A exclusion.
Common exam traps
- A rebate reduces tax, not income.
- Only resident individuals qualify.
- Three sets of figures: Rs 5 lakh / Rs 12,500 (old regime); Rs 7 lakh / Rs 25,000 (new regime, FY 2024-25); Rs 12 lakh / Rs 60,000 (new regime, from FY 2025-26).
- Not available against Section 112A LTCG tax — the rebate applies to tax on the rest of total income.
- Marginal relief caps tax at the income above the threshold; it does not give the full rebate.
- The workbook's Caselet 4 tax figure for FY 2025-26 (Rs 61,500) and its relief break-even figures do not reconcile with its slab table; the net tax payable of Rs 20,000 is correct either way.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- GrandfatheringThe Budget 2018 provision that kept long-term gains on equity funds accrued up to 31 January 2018 tax-free, by treating the value on that date as the base for computing taxable gain.
- Gross Total Income (Section 80B(5))The total income computed under the Act before any Chapter VI-A deduction — arrived at by adding the five heads of income, clubbing any income the law attributes to the assessee, and setting off losses.
- Marginal reliefRelief that caps the tax on income just above the section 87A rebate threshold at the amount by which the income exceeds that threshold — so one extra rupee of income never costs more than a rupee of tax.
- Standard deductionA flat deduction allowed without proof of expenses — Rs 50,000 (old regime) or Rs 75,000 (new regime) from salary, and 30% of net annual value from let-out house property.
- Equity-oriented fundA fund that puts at least 65% of its proceeds into listed domestic equity shares — the tax definition that unlocks the 12.5% long-term rate and the Rs 1,25,000 annual exemption.
- Clubbing of incomeSections 60 to 64 add someone else's income to yours — the Act's answer to families who move income to a lower-taxed relative while keeping the asset.
- Approved superannuation fundA superannuation fund approved by the Income Tax Commissioner under the Fourth Schedule — letting the employer deduct its contributions and giving the fund's income, and specified payouts, tax exemption.
- Capital Gains Account SchemeA deposit scheme letting a taxpayer claim a capital gains exemption (Sections 54, 54B, 54D, 54F, 54G) even if reinvestment is not done before the tax return is due, by parking the unused gain in a designated account.
- Adjustment of exemption limitA rule letting a resident individual or HUF use up any unused basic exemption limit against long-term capital gains (Sections 112, 112A) or 20% short-term gains (Section 111A), reducing the tax on those gains.