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Rebate Under Section 87A in India: How to Pay Zero Tax on Income up to ₹12 Lakh
If your total income is up to ₹12 lakh per year and you are a resident individual, Section 87A of the Income Tax Act 2025 can bring your tax down to zero. The rebate is available only under the new tax regime and is worth up to ₹60,000 per year. Here is how it works and who qualifies.
What is Section 87A?
Section 87A gives a tax rebate — literally a reduction of your tax liability to zero — to individual residents whose total income is within a certain range. It is not a deduction. It does not reduce your taxable income. It reduces the tax you owe, down to zero, before cess is applied.
The key distinction: this rebate applies only under the new tax regime. If you are on the old regime, Section 87A is not available to you.
Who qualifies for the Section 87A rebate?
You qualify for the full rebate under Section 87A if all three conditions are met:
- You are a resident individual (including HUFs — Hindu Undivided Family)
- Your total income for the financial year is ₹12 lakh or less
- You have opted for the new tax regime as your tax regime
If your total income exceeds ₹12 lakh, the rebate is not available — no matter which regime you are on.
How much is the rebate?
The rebate is the lesser of:
- The tax you owe (before cess), and
- ₹60,000
In practice, this means:
| Total income (new regime) | Tax before rebate | Section 87A rebate | Tax after rebate | Cess (4%) | Final tax |
|---|---|---|---|---|---|
| ₹7,50,000 | ₹0 | ₹0 | ₹0 | ₹0 | ₹0 |
| ₹8,00,000 | ₹15,000 | ₹15,000 | ₹0 | ₹0 | ₹0 |
| ₹9,00,000 | ₹37,500 | ₹37,500 | ₹0 | ₹0 | ₹0 |
| ₹10,00,000 | ₹60,000 | ₹60,000 | ₹0 | ₹0 | ₹0 |
| ₹11,00,000 | ₹85,000 | ₹60,000 | ₹25,000 | ₹1,000 | ₹26,000 |
| ₹12,00,000 | ₹1,10,000 | ₹60,000 | ₹50,000 | ₹2,000 | ₹52,000 |
Once income crosses ₹12 lakh, the rebate disappears completely.
How the new regime slabs interact with the rebate
Under the new tax regime (Section 202 of the Income Tax Act 2025), income up to ₹4 lakh is taxed at zero. The slabs from FY 2026-27 are:
| Income slab | Tax rate |
|---|---|
| Up to ₹4,00,000 | 0% |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The Section 87A rebate sits between the slab tax and the cess. It reduces the slab tax to zero before cess is calculated on the remaining tax.
Worked examples
Example 1 — salaried employee, ₹9.5 lakh: You earn ₹9,50,000 in a year. You are on the new regime. You have no other income.
- Income: ₹9,50,000
- Tax on first ₹4,00,000: ₹0
- Tax on next ₹4,00,000 (₹4L–₹8L at 5%): ₹20,000
- Tax on next ₹1,50,000 (₹8L–₹9.5L at 10%): ₹15,000
- Total tax before rebate: ₹35,000
- Section 87A rebate: ₹35,000
- Tax after rebate: ₹0
- Cess: ₹0
- Final tax: ₹0
Example 2 — business owner, ₹14 lakh (no rebate): You earn ₹14,00,000 as freelance income on the new regime.
- Income: ₹14,00,000
- Tax before cess: ₹1,10,000 (₹0 + ₹20,000 + ₹40,000 + ₹30,000 across slabs)
- Section 87A rebate: Not available (income above ₹12 lakh)
- Cess at 4%: ₹4,400
- Final tax: ₹1,14,400
Section 87A vs old regime — which is better?
The old regime has no Section 87A rebate but offers standard deduction of ₹75,000 (for salaried employees) and deductions under Sections 80C, 80D, 80CCD(1B), HRA, and others. For a taxpayer with large deductions, the old regime may still produce a lower total tax.
The new regime with Section 87A is most powerful for:
- Salaried employees with income between ₹7.5 lakh and ₹12 lakh who claim few deductions
- Young professionals early in their career with standard deduction only
- Freelancers with income up to ₹12 lakh who do not have ₹3–4 lakh in Section 80C/80D receipts
Example comparison — ₹9 lakh salaried employee:
| New regime | Old regime | |
|---|---|---|
| Gross income | ₹9,00,000 | ₹9,00,000 |
| Standard deduction | — (not available) | ₹75,000 |
| 80C / 80D / 80CCD(1B) | — | ₹1,50,000 |
| Taxable income | ₹9,00,000 | ₹6,75,000 |
| Tax before rebate | ₹37,500 | ₹14,000 |
| Section 87A rebate | ₹37,500 | Not available |
| Cess | ₹0 | ₹560 |
| Total tax | ₹0 | ₹14,560 |
For this taxpayer, the new regime with Section 87A saves ₹14,560 over the old regime.
Common mistakes
Mistake 1 — assuming the rebate applies in the old regime. Section 87A exists only under the new tax regime. If you are on the old regime, there is no Section 87A.
Mistake 2 — forgetting the rebate disappears above ₹12 lakh. At ₹12,00,001 of total income, the rebate drops to zero in a single step. A ₹1 increase in income above ₹12 lakh can increase your total tax by ₹60,000 plus cess. This is the most common surprise for taxpayers crossing the ₹12 lakh threshold.
Mistake 3 — not opting for the new regime to claim the rebate. The new regime is the default from FY 2026-27, but if you have filed an old-regime ITR in the past and want to switch, you must actively opt in on the e-filing portal before the due date.
Frequently asked questions
Can an NRI claim Section 87A rebate? No. Section 87A is available only to resident individuals. An NRI (Non-Resident Indian) is not eligible regardless of income level.
Is Section 87A available if I have income from house property and capital gains? Yes, as long as your total income from all sources (salary, house property, capital gains, other sources) is ₹12 lakh or less and you are a resident, the rebate applies. The source of income does not matter.
Does Section 87A reduce the cess? No. The cess of 4% is calculated on the tax after the rebate is applied. If the rebate brings your tax to zero, the cess is also zero.
Can a senior citizen claim Section 87A? Yes. Senior citizens (aged 60–80) and super senior citizens (aged 80+) who are residents can claim Section 87A under the new regime as long as their total income is ₹12 lakh or less. The existing higher basic exemption slabs for senior citizens (₹3 lakh and ₹5 lakh under the new regime) interact with the rebate.
Disclosure: FinWiz24 is an independent editorial publication. We do not earn commission from any tax-related products or services discussed on this page.
Sources
- Income Tax Act 2025, Section 87A — Rebate of income-tax (verified 2026-10-08)
- Income Tax Act 2025, Section 202 — Rate of tax under new regime (verified 2026-10-08)
- CBDT Notification No. 22/2026 — Income-tax Rules 2026 (verified 2026-10-08)