Tax regimes, slabs and rates · Tax Year 2025-26
Rebate under section 87A: who gets zero tax
The section 87A rebate can reduce your tax to nil. In the new regime it covers income up to ₹12 lakh, with marginal relief just above. In the old regime it covers income up to ₹5 lakh. Learn the limits and what it does not cover.
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The section 87A rebate reduces your tax, sometimes to zero, if your total income is within a limit. On the 2025-26 rules, in the new regime it applies when total income is ₹12,00,000 or less, and the rebate is up to ₹60,000. In the old regime it applies when total income is ₹5,00,000 or less, and the rebate is up to ₹12,500.
The figures for the tax year 2025-26 are signed off in TaxCare's rules. The tax year 2026-27 (the first under the Income-tax Act, 2025) repeats them provisionally and they are not yet signed off against the Finance Act 2026.
Under the Income-tax Act, 2025 the rebate is in section 156, with the same limits as enacted: ₹12,500 up to ₹5,00,000, and for the new regime ₹60,000 up to ₹12,00,000 with marginal relief. It is available only to an individual resident in India.
The limits side by side
| New regime | Old regime |
|---|---|---|
Total income limit | ₹12,00,000 | ₹5,00,000 |
Maximum rebate | ₹60,000 | ₹12,500 |
Marginal relief above the limit | Yes | No (a cliff) |
Rebate against short-term gain under 111A | No | Yes |
Rebate against long-term gain under 112A | No | No |
How it works in the new regime
Take taxable income of ₹12,00,000. Slab tax is:
- ₹4,00,001 to ₹8,00,000 at 5%: ₹20,000
- ₹8,00,001 to ₹12,00,000 at 10%: ₹40,000
- Total: ₹60,000
The rebate is ₹60,000, so tax is nil. Cess of 4% is applied to the tax after rebate, so it is also nil.
For a salaried person
The limit is on taxable income, after deductions. The standard deduction in the new regime is ₹75,000. So a person with only salary can have salary up to ₹12,75,000 and still pay zero tax.
Marginal relief
Just above ₹12 lakh, without relief, a small rise in income would cost far more in tax than the extra income. Marginal relief limits the tax to the income above ₹12,00,000. In the law's words, where total income exceeds ₹12 lakh and the slab tax is more than the income above ₹12 lakh, the rebate equals the difference, so the tax payable equals the income above ₹12 lakh. Above ₹12 lakh the slab tax is ₹60,000 plus 15% of the excess, and that stays higher than the excess itself until total income reaches about ₹12,70,590, the ceiling the CBDT validation rule states. From there marginal relief no longer helps.
Example: taxable income ₹12,10,000. Slab tax would be ₹61,500. The extra income is ₹10,000, so with marginal relief the tax is limited to ₹10,000 before cess, not ₹61,500. With 4% cess the total is ₹10,400.
How it works in the old regime
Tax on ₹5,00,000 in the old regime is ₹12,500 (5% of the income above ₹2,50,000). The rebate wipes it out. At ₹5,00,001 the rebate is gone and tax jumps, because there is no marginal relief in the old regime.
What the rebate does not cover
- In the new regime, tax on special-rate income such as short-term gains on shares under 111A, long-term gains under 112A, winnings and virtual digital assets is not rebated. Only slab-rate tax is.
- It is not available above the limit, except through marginal relief in the new regime.
- Cess is charged on tax after rebate.
Do you still need to file?
Yes, if filing is otherwise required. A zero-tax return is still a return. Read who must file an income tax return and old vs new tax regime.
How TaxCare helps
TaxCare applies the rebate for you under each regime, including marginal relief, and shows the tax both ways before you decide. Use the income tax calculator to try your own figures. If you also have capital gains, TaxCare keeps them out of the rebate where the rules require it.
This guide gives general information and is not professional tax advice.
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