Section 87A is the single line in the tax law that lets crores of Indians pay zero income tax. For FY 2025-26 it makes income up to ₹12 lakh tax-free under the new regime. Here is who actually qualifies — and the catches that quietly disqualify people who think they're safe.
1. What Section 87A actually does — in one sentence
Here is the whole idea without the jargon: you calculate your tax normally, and then Section 87A wipes it out — fully — if your taxable income is within a limit.
It is not a deduction (it doesn't reduce your income). It is not an exemption (it doesn't skip a slab). It is a rebate — a direct cut applied to the tax itself, right at the end. Compute the tax, then subtract the rebate. If the rebate is big enough, your tax becomes ₹0.
2. The numbers for FY 2025-26 (AY 2026-27)
This is the part that changed dramatically with Budget 2025, so old articles will mislead you. The current position:
| Regime | Income limit for rebate | Max rebate | Result |
|---|---|---|---|
| New regime (default) | Taxable income ≤ ₹12,00,000 | ₹60,000 | Zero tax |
| Old regime | Taxable income ≤ ₹5,00,000 | ₹12,500 | Zero tax |
Salaried bonus: Under the new regime, a salaried person also gets the ₹75,000 standard deduction before the ₹12 lakh test. So a gross salary up to ₹12.75 lakh can land at ₹12 lakh taxable — and then 87A makes the tax zero. Full breakdown: Standard Deduction in the New Tax Regime →
3. Do you qualify? The three-question test
Run yourself through these. All three must be "yes" for the new-regime ₹12 lakh zero-tax outcome.
- Are you a resident individual? The rebate is only for resident individuals. NRIs do not qualify — not at any income level. HUFs, firms and companies also can't claim it.
- Is your taxable income within the limit? ₹12 lakh in the new regime, ₹5 lakh in the old. This is income after the standard deduction and any allowed deductions — not your gross salary.
- Is your income "normal-slab" income? The rebate doesn't rescue every kind of income. Special-rate income (see the catch below) is taxed separately and the rebate ignores it.
Pass all three tests? Or unsure about one of them — especially the capital gains question? A FirstReports CA checks your eligibility across every income head and makes sure you pay the minimum tax legally owed. From ₹999 · Deadline: 31 July 2026.
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4. The catch nobody tells you: capital gains
This is where confident taxpayers get a surprise notice. The 87A rebate does not apply to income taxed at special rates. The big ones:
- Long-term capital gains under Section 112A (listed shares / equity mutual funds) — taxed at 12.5% beyond the annual exemption.
- Short-term capital gains under Section 111A (listed shares) — taxed at 20%.
- Lottery, betting and similar winnings — taxed at a flat 30%.
So picture this: total income ₹9 lakh, of which ₹2 lakh is equity LTCG. People assume "under ₹12 lakh → zero tax." Wrong. The rebate erases the tax on the ₹7 lakh of normal income, but the tax on the ₹2 lakh LTCG still has to be paid. The rebate simply doesn't reach special-rate income.
Watch out: If you sold shares or equity mutual funds on Zerodha, Groww or any broker this year, your "zero tax up to ₹12 lakh" assumption may be wrong. Capital gains tax is computed separately and survives the 87A rebate.
Have capital gains this year? Don't assume zero tax — the 87A rebate won't cover it. A FirstReports CA computes your exact STCG, LTCG, and normal-slab tax separately, so you're never caught off guard. From ₹999 · Deadline: 31 July 2026.
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5. Just over ₹12 lakh? Marginal relief saves you
A fair worry: "If ₹12 lakh is zero tax, does ₹12,10,000 suddenly trigger a huge bill?" Without protection, yes — you'd lose the entire rebate and pay tax on the whole amount, paying far more extra tax than the extra income. That would be absurd, so the law provides marginal relief.
Marginal relief caps your tax so that the extra tax never exceeds the extra income above ₹12 lakh.
| Taxable income | Income over ₹12L | Tax without relief | Tax after marginal relief |
|---|---|---|---|
| ₹12,00,000 | ₹0 | ₹0 | ₹0 |
| ₹12,10,000 | ₹10,000 | ≈ ₹61,500 | ≈ ₹10,000 |
| ₹12,50,000 | ₹50,000 | ≈ ₹67,500 | ≈ ₹50,000 |
Figures are illustrative and exclude cess; your CA computes the exact relief. The principle is what matters: a small overshoot of ₹12 lakh does not blow up your tax bill.
6. Worked example — salaried, ₹13.5 lakh
Let's run a realistic case. Riya, salaried, new regime, gross salary ₹13,50,000, no capital gains.
| Step | Amount |
|---|---|
| Gross salary | ₹13,50,000 |
| Less: Standard deduction | – ₹75,000 |
| Taxable income | ₹12,75,000 |
| 87A rebate? | No — income above ₹12,00,000 |
| Tax (slabs) + 4% cess | ≈ ₹64,000 |
If Riya's gross had been ₹12.75 lakh instead, the standard deduction would have pulled her to exactly ₹12 lakh, the 87A rebate would apply, and her tax would be ₹0. That ₹75,000 of extra salary is what costs her the rebate — a vivid reminder that the ₹12 lakh line is measured on taxable income, and structuring matters.
Find out exactly where you stand: Whether 87A makes your tax zero depends on residency, capital gains, regime choice and marginal relief — easy to get wrong, costly when you do. A real Chartered Accountant at FirstReports computes it precisely and files your return. Check my tax with a real CA — from ₹999 →
7. Zero tax ≠ no filing
One last myth. Even if Section 87A makes your tax exactly ₹0, you may still be legally required to file an ITR — for example if your gross total income (before deductions) exceeds the basic exemption limit, if TDS was deducted and you want a refund, if you hold foreign assets, or if you meet other mandatory-filing triggers. "Zero tax" and "no return needed" are two different questions.
Bottom line: Section 87A is genuinely powerful — zero tax up to ₹12 lakh (₹12.75 lakh salaried) under the new regime for FY 2025-26. But it only works for resident individuals, only on normal-slab income, and only within the limit. Capital gains and NRI status are the silent disqualifiers.
Frequently Asked Questions
What is the Section 87A rebate for FY 2025-26?
It is a rebate that reduces your income tax to zero when taxable income is within a limit. For FY 2025-26 (AY 2026-27): up to ₹60,000 under the new regime (income up to ₹12 lakh) and up to ₹12,500 under the old regime (income up to ₹5 lakh).
Who is eligible for the Section 87A rebate?
Only resident individuals. NRIs, HUFs, firms and companies are not eligible. Your taxable income must also be within the regime's limit — ₹12 lakh (new) or ₹5 lakh (old).
Is income up to ₹12 lakh really fully tax-free under the new regime?
Yes — for resident individuals, normal income up to ₹12 lakh taxable means zero tax, because the rebate cancels the whole tax. For salaried individuals, after the ₹75,000 standard deduction, a gross salary up to ₹12.75 lakh is effectively tax-free.
What happens if my income is slightly above ₹12 lakh?
Marginal relief applies. It ensures the extra tax you pay does not exceed the income you earned above ₹12 lakh, so you are not penalised disproportionately for marginally crossing the line.
Does the 87A rebate apply to capital gains?
No. It does not apply to special-rate income such as LTCG under Section 112A or STCG under Section 111A. Tax on those gains is payable even if your total income is within ₹12 lakh — only normal-slab tax is wiped out.
Can NRIs claim the Section 87A rebate?
No. It is available only to resident individuals. NRIs cannot claim it regardless of how low their Indian taxable income is.
Do I still need to file a return if my tax is zero because of 87A?
Often yes. Zero tax does not remove the filing obligation. If your gross total income exceeds the basic exemption limit, or you meet other mandatory conditions (TDS refund, foreign assets, high-value transactions), you must still file an ITR.
Is the rebate ₹60,000 or ₹25,000?
For FY 2025-26 under the new regime it is up to ₹60,000 (tax on ₹12 lakh). The ₹25,000 figure was for FY 2024-25 when the limit was ₹7 lakh. For the return you file now (AY 2026-27), use ₹60,000 / ₹12 lakh.
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