Section 87A Rebate Explained for FY 2025–26
How the Section 87A threshold, ₹60,000 cap and marginal relief work for supported new-regime ordinary income.
- Published
- Published
- Updated
- Updated
- Reading time
- 8 min read
- Applicable Financial Year
- FY 2025–26
- Applicable Assessment Year
- AY 2026–27
- Last verified
This article is for education and general information. See the Financial Disclaimer before using it for an important decision.
The ₹12 lakh rule is conditional
For FY 2025–26 / AY 2026–27, a resident individual whose total income is chargeable under the applicable new-regime provision may receive a Section 87A deduction equal to the eligible calculated tax, capped at ₹60,000, when total income does not exceed ₹12,00,000.
Within this calculator's supported ordinary slab-income scenario, slab tax at ₹12,00,000 is ₹60,000 and the ordinary rebate reduces it to zero before cess. This should not be restated as everyone earning ₹12 lakh always pays zero tax: the official provision limits the treatment of tax on special-rate income, which this calculator does not classify or calculate.
What happens at and above ₹12 lakh
The examples below come directly from the current Income Tax engine. Marginal relief limits tax after relief to the amount by which income exceeds ₹12 lakh while the ordinary slab tax is higher than that excess.
| Income | Slab tax | Ordinary rebate | Marginal relief | Tax after relief | Cess | Final estimate |
|---|---|---|---|---|---|---|
| ₹12,00,000 | ₹60,000 | ₹60,000 | ₹0 | ₹0 | ₹0 | ₹0 |
| ₹12,00,001 | ₹60,000.15 | ₹0 | ₹59,999.15 | ₹1 | ₹0.04 | ₹1.04 |
| ₹12,50,000 | ₹67,500 | ₹0 | ₹17,500 | ₹50,000 | ₹2,000 | ₹52,000 |
| ₹12,70,588 | ₹70,588.2 | ₹0 | ₹0.2 | ₹70,588 | ₹2,823.52 | ₹73,411.52 |
₹12,00,001 does not create a ₹60,000 tax cliff
At ₹12,00,001, ordinary rebate is zero, but marginal relief reduces ₹60,000.15 of slab tax by ₹59,999.15. Tax after relief is ₹1; 4% cess is ₹0.04; the final estimate is ₹1.04.
At ₹12,50,000, marginal relief is ₹17,500 and tax after relief is ₹50,000. Near the crossover, ₹12,70,588 still receives ₹0.20 of marginal relief. From the point where ordinary slab tax is no higher than income above ₹12 lakh, marginal relief no longer changes the result.
Relief comes before cess
Cess is calculated on tax after the applicable rebate or marginal relief. The 4% cess explanation shows this order separately.
Frequently asked questions
Is marginal relief the same as the ordinary ₹60,000 rebate?
No. The ordinary rebate applies at or below the threshold subject to its cap. Marginal relief applies just above the threshold when calculated slab tax exceeds the income above ₹12 lakh.
Does the example cover capital gains or other special-rate income?
No. It covers ordinary slab-rate taxable income only; the calculator does not classify or compute special-rate income.
References
Authoritative sources used for facts that may change over time.
- Finance Act 2025 — amendment of section 87A — Income Tax Department (accessed 2026-08-18)
- Salaried Individuals for AY 2026–27 — Income Tax Department (accessed 2026-08-18)
- Memorandum explaining the provisions of the Finance Bill, 2025 — Ministry of Finance (accessed 2026-08-18)
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