Section 156 · Rebates and reliefs
Section 156 of the Income-tax Act, 2025 — Rebate of Income-tax for Certain Individuals (New Section 87A)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IX
📜 What the law says — Section 156, Income-tax Act 2025
156. (1) An assessee, being an individual resident in India, shall be entitled to a
deduction of 100% of income-tax payable or ` 12500, whichever is less,
from the income-tax (computed before allowing the deduction under this section)
chargeable on the total income for any tax year if such total income does not exceed
` 500000.
(2) Where the total income of a resident individual assessee for any tax year is
chargeable to tax under section 202(1), then from income-tax (computed before
allowing the deduction under this section) following deductions shall be allowed, if—
(a) the income does not exceed twelve lakh rupees, 100% of the income-tax
payable or ` 60000, whichever is less;
(b) the total income exceeds twelve lakh rupees and the income-tax payable
on such total income exceeds the amount by which the total income is in
excess of twelve lakh rupees, an amount equal to the amount by which
the income-tax payable on such total income is in excess of the amount
by which the total income exceeds twelve lakh rupees.
(3) The deduction under sub-section (2), shall not exceed income-tax payable as per
the rates provided in section 202(1).
Relief when salary, etc., is paid in arrears or in advance.
In plain language
What Section 156 says in plain English
Section 156 of the Income-tax Act, 2025 is the new home of the old Section 87A rebate. It gives a resident individual a straight cut in the income-tax they owe, provided their total income stays within a set ceiling. The provision takes effect from 1 April 2026 (Tax Year 2026-27), replacing Section 87A of the Income-tax Act, 1961. The wording was renumbered and tidied up, but the substance — a rebate for lower and middle-income individuals — is carried forward.
The single most important idea: this is a rebate, not an exemption. Tax is first computed on your total income, and only then is the rebate subtracted. If the rebate equals or exceeds your tax, your liability becomes zero. It never turns into a refund on its own and it cannot wipe out tax on income taxed at special rates.
Who can claim it
- Only resident individuals — you must qualify as "resident" in India for that tax year.
- Not available to non-residents (NRIs), HUFs, firms, LLPs, companies, or any other entity.
- Senior and super-senior citizens who are residents can claim it like any other resident individual.
How much rebate you get
Section 156 has two limbs depending on which tax regime applies to you:
- Old / normal regime — Section 156(1): Rebate of 100% of tax payable or ₹12,500, whichever is lower, if total income does not exceed ₹5,00,000.
- New regime — Section 156(2) (the default regime under Section 202(1), the successor to Section 115BAC): Rebate of 100% of tax payable or ₹60,000, whichever is lower, if total income does not exceed ₹12,00,000. This is why income up to ₹12 lakh under the new regime effectively bears zero tax.
Marginal relief — the ₹12 lakh soft landing
What happens if your income is just above ₹12 lakh in the new regime? Without help, crossing the line by even ₹1,000 could cost tens of thousands in tax. Section 156 provides marginal relief: for income slightly over ₹12,00,000, your total tax is capped so it never exceeds the amount by which your income crosses ₹12,00,000. In practice this smooths the jump for incomes roughly between ₹12,00,000 and about ₹12,75,000. Beyond that band, normal slab tax applies with no rebate.
The big trap: income taxed at special rates
The rebate applies only to tax computed at normal slab rates. It cannot reduce tax on income taxed at special/flat rates, including:
- Long-term capital gains (e.g. on equity under the successor to Section 112A) — explicitly outside the rebate;
- Short-term capital gains on listed equity taxed at the special rate;
- Lottery, betting and online-gaming winnings;
- Winnings, virtual digital asset income, and certain unexplained income.
So a person can have total income under ₹12 lakh yet still pay some tax — because part of it is special-rate income the rebate cannot touch.
Practical points
- Automatic: the e-filing portal and tax software apply the rebate for you — no separate form or declaration.
- Applied before cess: the rebate reduces basic tax; the 4% Health & Education Cess is charged on the balance after rebate.
- Rebate can't exceed your tax: the deduction is limited to the tax actually payable, so it never creates a standalone refund.
💡 Example
Example 1 — New regime, salary of ₹12,00,000. Rohit is a resident with total income of exactly ₹12,00,000, all salary, under the new regime (Section 202). His tax computed on slabs before rebate is around ₹60,000. Because his income does not exceed ₹12,00,000, Section 156(2) grants a rebate of the lower of ₹60,000 or the tax payable — so the full ₹60,000 is wiped out. His final tax, including cess, is ₹0.
Example 2 — Just over the line, marginal relief. Meena, a resident, has income of ₹12,10,000 under the new regime. Normal slab tax would be well above ₹60,000, and the rebate does not apply because she crosses ₹12,00,000. But marginal relief caps her tax at the excess over ₹12,00,000, i.e. roughly ₹10,000 (plus 4% cess), instead of the much larger slab figure. This stops a tiny raise from triggering a huge tax bill.
Example 3 — The capital-gains trap. Arjun earns ₹10,00,000 salary plus ₹1,00,000 short-term capital gain on shares. His total income is ₹11,00,000 — below ₹12 lakh. The salary portion is covered by the rebate, but the ₹1,00,000 STCG is taxed at the special rate and the rebate cannot reduce it. Arjun ends up paying roughly ₹20,000-₹21,000 (with cess) even though he assumed he'd owe nothing. This is the classic surprise Section 156 does not cover.
A relatable story. Priya, a 29-year-old software tester, celebrated when she read "no tax up to ₹12 lakh." She sold some mutual-fund units for a ₹90,000 long-term gain that year. At filing time she was stunned to see a tax demand. Her CA explained that Section 156 zeroed out tax on her ₹11 lakh salary, but the LTCG sat outside the rebate. The lesson she took away: the rebate is generous, but it protects only your regular income — plan your capital gains separately.
| Aspect | Old / Normal Regime — Sec 156(1) | New Regime — Sec 156(2) (Sec 202) |
|---|
| Income ceiling | Total income up to ₹5,00,000 | Total income up to ₹12,00,000 |
| Maximum rebate | ₹12,500 | ₹60,000 |
| Rebate formula | 100% of tax or ₹12,500, whichever is lower | 100% of tax or ₹60,000, whichever is lower |
| Marginal relief | Not applicable | Yes, for income slightly above ₹12L (up to ~₹12.75L) |
| Who is eligible | Resident individual only | Resident individual only |
| Covers special-rate income (LTCG etc.)? | No | No |
| Effective from | Tax Year 2026-27 (1 April 2026) | Tax Year 2026-27 (1 April 2026) |
Related sections
Section 202 — New default tax regime (successor to 115BAC) Residential status — who is a 'resident individual' Long-term capital gains on equity (outside the rebate) Short-term capital gains at special rate (outside the rebate) Tax on lottery, betting and gaming winnings (no rebate) Section 87A — old-law equivalent replaced by Section 156
Frequently asked questions
Is my income up to ₹12 lakh tax-free under Section 156?
Not exactly — it is a rebate, not an exemption. Tax is computed first and then fully rebated (up to ₹60,000) if your income does not cross ₹12 lakh in the new regime, so your effective liability becomes zero.
Can NRIs or HUFs claim the Section 156 rebate?
No. The rebate is available only to resident individuals. Non-residents, HUFs, firms, LLPs and companies cannot claim it.
Why am I still paying tax even though my income is below ₹12 lakh?
Most likely because part of your income is taxed at special rates — such as capital gains or lottery winnings — which the Section 156 rebate cannot reduce. The rebate only offsets tax on normal slab-rate income.
What is the rebate amount under the old regime?
Under the old/normal regime, the rebate is the lower of ₹12,500 or your tax payable, and only if your total income does not exceed ₹5,00,000.
What is marginal relief under Section 156?
If your new-regime income slightly exceeds ₹12,00,000, marginal relief caps your tax so it does not exceed the amount by which your income crosses ₹12 lakh, preventing a sudden large tax jump. It applies roughly up to ₹12.75 lakh.
Do I need to file a separate form to claim this rebate?
No. The rebate is applied automatically by the income-tax e-filing portal and tax software when you file your return — no separate claim or declaration is needed.
How is Section 156 different from the old Section 87A?
Section 156 of the 2025 Act simply re-houses and renumbers the Section 87A rebate of the 1961 Act; it is effective from 1 April 2026. The relief mechanism, thresholds and amounts are carried forward, not changed by the renumbering.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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