What is Section 87A Rebate and Who Can Claim it in 2026?

Last Updated on August 21, 2026

A tax rebate is a kind of relief for qualified taxpayers where there is less amount of tax payable. Rebates differ from deductions as while deductions lower the total income on which tax is to be calculated, rebates lower the tax payable directly. The Income Tax Act, 1961 provides rebates on specified grounds, income limits, and other requirements. The famous section for rebates is section 87A, providing rebates to qualified resident taxpayers. Knowing about tax rebates helps in calculating the actual tax payable by individuals, taking appropriate decisions on tax regimes, and making use of advantages.

What is Rebate Under Income Tax Act 1961?

A refund of income tax decreases the liability of income tax payable by an eligible person. The Income Tax Act, 1961 provides for certain sections under which a tax refund can be claimed.

Rebates refer to tax benefits provided to those taxpayers who satisfy certain conditions, such as restrictions on income or other eligibility criteria. One of the commonly claimed refunds is that of Section 87A, offering relief to eligible resident individual taxpayers with income up to the prescribed limits. No rebate is possible beyond the tax liability, and it is granted only when the taxpayer qualifies for the same through statutory criteria.

Section 87A Rebate Under the Income Tax Act, 1961

Section 87A provides a rebate from income tax payable to eligible resident individual taxpayers whose total income falls within the prescribed limit.

• Purpose: The provision is intended to provide tax relief to individuals with relatively lower taxable income by reducing their final income-tax liability.
• Eligibility: The rebate is available to resident individuals, subject to the conditions and income limits applicable for the relevant assessment year.
• New tax regime: For AY 2026–27, an eligible resident individual under the new tax regime can claim a rebate of up to ₹60,000 where taxable income does not exceed ₹12 lakh, subject to applicable provisions.
• Old tax regime: Under the old tax regime, an eligible resident individual with total income not exceeding ₹5 lakh can claim a rebate of up to ₹12,500.
• Nature of relief: Section 87A reduces the tax payable, rather than reducing taxable income. The rebate cannot exceed the income tax payable.
• Special-rate income: Taxpayers earning capital gains or other income taxable at special rates should carefully check the specific rules applicable to their income before claiming the rebate.

New Tax Regime Slabs for AY 2026-27: Why ₹60,000 is the Rebate Cap

Income Slab	Tax Rate
Up to ₹4 lakh	Nil
₹4 lakh – ₹8 lakh	5%
₹8 lakh – ₹12 lakh	10%
₹12 lakh – ₹16 lakh	15%
₹16 lakh – ₹20 lakh	20%
₹20 lakh – ₹24 lakh	25%
Above ₹24 lakh	30%

Tax on ₹12 lakh:

• ₹4L–₹8L: ₹20,000 (5%)
• ₹8L–₹12L: ₹40,000 (10%)
• Total: ₹60,000

This is why the Section 87A rebate for the new regime is exactly ₹60,000; it is designed to completely cancel out the tax liability on income up to ₹12 lakh, making it effectively zero for eligible taxpayers.

Who Can Claim Section 87A Rebate Under Income Tax Act 1961?

The provisions differ in case of old and new tax regimes. In case of AY 2026-27 (FY 2025-26), the following conditions are applicable:

1. Section 87A tax rebate is available only to resident individuals. Non-residents cannot claim this rebate.
2. Under the new tax regime: For AY 2026-27, residents having taxable income up to ₹12 lakh can avail up to ₹60,000 rebate, subject to certain conditions. This rebate will lower the income tax liability to nil in case of applicability.
3. Marginal relief under new tax regime: In case the income is slightly above ₹12 lakh, marginal relief can be availed, subject to certain conditions. Crossing of ₹12 lakh will not nullify the rebate.
4. Under the old tax system: Individuals whose total income was less than ₹5 lakhs were entitled to a rebate of ₹12,500.
5. Not an income deduction: Under section 87A, there is no reduction in taxable income; thus, the rebate is not an income deduction but a payment of a rebate against the income tax, up to the maximum limit allowed.
6. Eligibility criteria of individuals earning from different income heads: An individual may be eligible if his income is derived from salary, business or profession, house property, interest or other incomes, provided he satisfies the requirements. It is explicitly mentioned by the Income Tax department in respect of AY 2026-27 that the section 87A rebate is available for individuals who have earned income from a business or profession along with the above-mentioned income heads.
7. Special cases of income: The rebate eligibility and computation may depend upon the type of income. Individuals whose income is from capital gain or any special rate income should read the provisions instead of assuming that all types of income are eligible for the rebate.

Section 87A and Capital Gains: The Rule That Surprises Most Taxpayers

For AY 2026-27, the position on capital gains and Section 87A is:

Income Type	Section 87A Rebate Available?
Salary, house property, business, other income	Yes, rebate applies
STCG under Section 111A (listed equity, STT paid)	No, rebate not available against this tax
LTCG under Section 112A (listed equity above ₹1.25 lakh)	No, rebate not available against this tax
LTCG under Section 112 (unlisted shares, property)	No, rebate not available
STCG on debt funds, assets other than equity	Slab rate income, rebate applies

Practical example: A taxpayer with ₹8 lakh salary income and ₹2 lakh STCG from equity shares (Section 111A):

• Total income: ₹10 lakh (below ₹12 lakh threshold)
• Tax on salary income: reduced to nil by Section 87A rebate
• Tax on STCG (₹2 lakh × 20%): ₹40,000, Section 87A rebate does NOT apply here

This was the source of major confusion in AY 2024-25 when the ITR portal blocked rebate claims against STCG; many taxpayers received unexpected tax demands. For complete guidance on STCG and LTCG tax rates post Budget 2024, see our guide on capital gains tax on shares in India. This directly affects how much of your tax is eligible for the Section 87A rebate.

Marginal Relief for Taxpayers Just Above ₹12 Lakh (New Regime)

When income slightly exceeds ₹12 lakh, without marginal relief the entire benefit of Section 87A would disappear overnight, creating a situation where earning ₹1 more results in a tax jump of ₹60,000+.

Marginal relief prevents this cliff effect:

How marginal relief works:

Tax payable (with marginal relief) = Excess income over ₹12 lakh

Example:

• Taxable income: ₹12,50,000
• Normal tax on ₹12.5 lakh (new regime): ~₹75,000
• Without rebate (income exceeds ₹12L threshold): full ₹75,000 due
• Marginal relief: Tax is capped at ₹50,000 (the amount by which income exceeds ₹12 lakh)
• Actual tax payable: ₹50,000 (not ₹75,000)

The marginal relief ensures that a taxpayer earning ₹50,000 more than ₹12 lakh pays at most ₹50,000 more in tax, not the full tax on ₹12.5 lakh with no rebate. The relief reduces the extra tax to the amount of extra income.

Who CANNOT Claim Section 87A?

Taxpayer Type	Can Claim Section 87A?
Resident individual	Yes
Non-Resident Indian (NRI)	No, residency required
Hindu Undivided Family (HUF)	No, not an individual
Firm / LLP	No
Company	No
AOP / BOI	No
Trust	No

This is important because HUFs are often confused with individuals in tax planning. An HUF with income of ₹10 lakh under the new regime does NOT qualify for the Section 87A rebate, even though an individual with the same income and same PAN would qualify.

Companies and LLPs cannot claim Section 87A rebate for their income tax filing obligations; see our guide on how to file ITR for a private limited company.

Conditions to Avail Section 87A Rebate

The determination of whether a taxpayer is eligible for the benefits of section 87A depends on the residential status of the taxpayer, the tax scheme applied, and the taxable income.

1. The individual taxpayer must be a resident. Only residents of India have the opportunity to obtain the benefit of section 87A. Non-residents cannot avail themselves of this benefit.
2. Maximum income limit under the new tax regime: In AY 2026-27, a resident individual is entitled to a refund of up to ₹60,000 if his/her taxable income does not exceed ₹12 lakh.
3. Maximum income limit under the old tax regime: The rebate is applicable to an income of up to ₹5 lakh. The maximum rebate is ₹12,500.
4. Rebate is restricted to tax payable only. Rebate under section 87A is based on the amount of tax payable. A negative tax amount or a refund based on Section 87A alone can never arise.
5. Applicable tax regimes: Estimation of the applicable Section 87A rebate requires calculation of tax liability under the selected tax scheme. The conditions for each tax scheme differ vastly from one another.
6. Conditions include the total/income tax threshold required for eligibility after accounting for the deductions/exemptions that may apply under the respective tax scheme.
7. Taxpayers with special rate incomes need to look into Section 87A criteria and ITR validation criteria before considering the whole tax liability eligible for rebate. Special rate income includes capital gains and other forms of special rate income.
8. Appropriate claim of rebate: When filing your income tax return, ensure you disclose the rebate appropriately.

How To Claim The Section 87A Rebate?

1. Check your eligibility: Sec 87A is relevant for resident individual taxpayers meeting certain income conditions. For Assessment Year 2026-27, the maximum rebate available in the new tax regime for eligible taxable income of up to ₹12 lakh is ₹60,000, while it will be ₹12,500 in the old tax regime for the eligible income of up to ₹5 lakh.
2. Choice of an appropriate tax regime: Calculate your tax liability in accordance with the old or new regime, whichever suits you better. By default, the new tax regime is considered.
3. Calculation of total taxable income: Total income from salary, business/profession, house property, capital gains, and others. Deductions/exemptions as per the tax regime chosen.
4. Compute the tax liability: The tax liability should be calculated first, before calculating the tax rebate u/s 87A.
5. Claiming the rebate by filing the ITR: The rebate will be considered during the calculation of the tax in the applicable ITR. Ensure your residence, income, and the regime under which you pay the tax are properly mentioned.
6. Check the limit for claiming the rebate: It should not be more than the income tax payable. Under the new regime, taxpayers can claim up to ₹60,000 as the rebate for AY 2026-27. While under the old regime, you can claim a maximum of ₹12,500.
7. Check the special rate income: If any taxpayer has special rate income, then check if you are eligible to claim the rebate under Section 87A. There are special conditions for claiming the rebate in the ITR validation standard.
8. Verify and file the ITR: You need to submit the return and do the e-verification once you have completed the ITR. The Income Tax department recommends e-Verification for ITR verification.
9. Record-keeping: Keep the ITR acknowledgement, computation, and supporting documents for future reference.

File your ITR before the due date to correctly claim Section 87A. Our guide on the last date for ITR filing in India covers all AY 2026-27 deadlines.”

How the ITR Portal Handles Section 87A

The income tax e-filing portal applies Section 87A automatically during tax computation; taxpayers don’t manually enter the rebate amount. However:

• If total income (including special rate income) exceeds the threshold, the portal may deny the rebate on the entire tax computation, not just the special rate portion
• If the portal computation shows higher tax than expected, check whether special rate income is causing the rebate to be denied
• Do not override the portal computation if you believe the rebate is wrongly denied; file the return as computed by the portal and then file a rectification request or appeal through proper channels rather than manually adjusting figures

The portal’s automated validation makes Section 87A claims straightforward for simple salary/other income filers but creates complications for those with capital gains. Verify the computation carefully before e-verification.

Examples to Understand Section 87A Rebate

Under AY 2026–27, Section 87A provides an eligible resident individual a rebate of up to ₹12,500 in the old tax regime and ₹60,000 in the new tax regime according to the specified income criteria.

Old Tax Regime – Income ₹5 lakh

• Rahul is a resident individual with taxable income of ₹5,00,000.
• Pre-rebate tax is ₹12,500.
• As his income doesn’t exceed ₹5 lakh, he will be eligible for the rebate under section 87A.
• Rebate: ₹12,500.
• Post-rebate tax: Nil (without taking cess into account).

New Tax Regime – Income ₹10 lakh

• Priya is a resident individual with a taxable income of ₹10,00,000.
• Under the new tax regime, the tax on her income comes out to ₹40,000 according to the specified slabs.
• As her taxable income is less than ₹12 lakh, she will be eligible for the section 87A rebate.
• Rebate: ₹40,000.
• Post-rebate tax: Nil.

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Conclusion

Section 87A provides substantial tax relief to eligible resident individual taxpayers through reduced income tax obligations, but only under some conditions and income limits. It is imperative to have an insight into the relevant tax regime and claim tax rebates correctly. Contact Kanakkupillai for professional assistance regarding tax issues.

Frequently Asked Questions

1. Who can avail the Section 87A rebate?

Only resident individual taxpayers can claim Section 87A. For AY 2026-27 (FY 2025-26): under the new tax regime, resident individuals with total income up to ₹12 lakh can claim a rebate up to ₹60,000. Under the old tax regime, resident individuals with total income up to ₹5 lakh can claim a rebate up to ₹12,500. HUFs, firms, companies, and non-residents cannot claim this rebate under any circumstances.

2. What is the maximum rebate one can avail through Section 87A?

For AY 2026-27, new tax regime: ₹60,000 (for taxable income up to ₹12 lakh). Old tax regime: ₹12,500 (for taxable income up to ₹5 lakh). The rebate cannot exceed the income tax payable if tax liability is ₹30,000; the rebate is ₹30,000 (not ₹60,000). The rebate effectively makes tax nil for most eligible taxpayers.

3. Is Section 87A applicable in both regimes?

Yes, Section 87A can be availed of in both tax regimes. However, the income threshold and maximum rebate differ with respect to each tax slab.

4. Is Section 87A able to reduce the tax to nil?

Yes. If the taxpayer qualifies for Section 87A, and the amount of income-tax liability calculated by him comes under the applicable rebate limit of Section 87A, then the rebate will help reduce the tax liability to nil. But the rebate will not exceed the tax liability.

5. How does the Section 87A rebate get claimed?

Section 87A rebate is claimed while submitting the income tax return. The taxpayer should enter their details related to the income earned and the tax regime applicable to them. The eligible rebate is entered in the tax calculation as per the relevant provisions.