Income Tax · Tax basics · Rebate
What is a tax rebate (Section 87A) — and how does it work?
✍️ Answered by EaseValue Advisors · Updated 18 Jul 2026
· 4-min read
Quick answer
A rebate (Section 87A) is a direct reduction of the tax itself — not a deduction from income. For a resident individual it makes tax nil up to ₹12 lakh in the new regime (₹5 lakh in the old). It's applied after computing tax, before cess — and it's different from TDS.
Rebate vs deduction vs TDS — don't confuse them
- Deduction (like 80C) reduces your income before tax is computed.
- Rebate (87A) reduces the tax after it's computed — it can wipe the tax to zero.
- TDS is tax already deducted at source and paid on your behalf — a rebate is not deducted by anyone, it's applied when you compute your return.
How Section 87A works (FY 2025-26)
- New regime: if your total income is up to ₹12,00,000, the rebate cancels the entire tax — you pay nil (up to ₹12.75 lakh for the salaried after the ₹75,000 standard deduction). Max rebate ~₹60,000.
- Old regime: if total income is up to ₹5,00,000, tax is nil. Max rebate ₹12,500.
- Only for resident individuals (not NRIs, HUFs or companies).
Just over the line?
Marginal relief softens the edge just above ₹12 lakh so a small overshoot doesn't create a big jump — see marginal relief.
Important
The 87A rebate does not apply to special-rate income like equity LTCG (112A) — that's taxed at 12.5% regardless.
General information based on the Income-tax Act as it stands, not advice on your specific case. Tax outcomes
depend on your exact facts and residential status. © EaseValue Advisors LLP.
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