Section 87A Rebate under the Income Tax Act 2025: Section 156, Rs 60,000 Limit and Rs 12 Lakh Rule
The rebate that many taxpayers still call the "87A rebate" is in section 156 of the Income-tax Act, 2025 (the section carries the same heading, "Rebate of income-tax in case of certain individuals"). It is available only to a resident individual. For tax year 2026-27, an individual taxed at the section 202(1) slab rates gets a rebate of up to Rs 60,000 if total income is Rs 12 lakh or less, and a form of marginal relief just above Rs 12 lakh.
This guide explains how section 155 and section 156 work together, who can claim, how the marginal relief is worked out, and what happens when the income includes long-term capital gains. Every figure comes from the Act as amended by the Finance Act, 2026, and the section number sits next to it. Last reviewed against that text on 10 November 2026. Cess and surcharge are not covered in the sections used here, so the examples show tax before them.
What is the rebate under section 156 of the Income Tax Act 2025?
A rebate is a reduction in the tax itself, not in income. Section 155(1) says the rebates in that Part are allowed from the income-tax computed on total income before the deductions under the Part, and the only one the section names is section 156. Section 155(2) adds a ceiling: the rebate can never be more than the income-tax computed before the rebate.
So the rebate can bring tax to nil. It cannot create a refund by itself.
Who can claim the section 156 rebate?
- An individual who is resident in India for the tax year (section 156(1) and (2)).
- Not a HUF, firm, company or any other person, and not a non-resident individual. The section does not extend to them.
- The rebate depends on total income (income after deductions), not gross income.
How much is the rebate? Section 156(1) and 156(2) compared
| Section 156(1) | Section 156(2) | |
|---|---|---|
| Applies when | Total income does not exceed Rs 5,00,000 | Total income is chargeable to tax under section 202(1) (the slab Table) |
| Rebate | 100% of tax payable or Rs 12,500, whichever is less | (a) Income up to Rs 12,00,000: 100% of tax payable or Rs 60,000, whichever is less (b) Income above Rs 12,00,000: the amount by which tax payable exceeds the income above Rs 12,00,000 |
| Cap | Cannot exceed the tax before rebate (section 155(2)) | Cannot exceed tax payable at the section 202(1) rates (section 156(3)) |
The Act does not, in the sections used here, list who falls under 156(1) beyond the Rs 5 lakh test. Section 202(1) is the slab Table for individuals, HUFs and certain other persons unless they exercise the option under section 202(4). Check which route your client's return uses before choosing the sub-section.
What are the section 202(1) slab rates the rebate works on?
| Total income | Rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 to Rs 8,00,000 | 5% |
| Rs 8,00,001 to Rs 12,00,000 | 10% |
| Rs 12,00,001 to Rs 16,00,000 | 15% |
| Rs 16,00,001 to Rs 20,00,000 | 20% |
| Rs 20,00,001 to Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
Tax on Rs 12,00,000 works out to Rs 20,000 (5% of Rs 4 lakh) plus Rs 40,000 (10% of Rs 4 lakh), which is Rs 60,000. That is why the Rs 60,000 cap in 156(2)(a) clears the tax for anyone at or below Rs 12 lakh.
How does the rebate work? A step-by-step decision
Worked example 1: income of Rs 10,00,000 (tax year 2026-27)
Assume Meena, a resident individual, has total income of Rs 10,00,000, all taxed at the section 202(1) slab rates.
| Step | Working | Amount |
|---|---|---|
| Tax on first Rs 4,00,000 | Nil | Rs 0 |
| Tax on next Rs 4,00,000 | 5% of Rs 4,00,000 | Rs 20,000 |
| Tax on next Rs 2,00,000 | 10% of Rs 2,00,000 | Rs 20,000 |
| Tax before rebate | Rs 40,000 | |
| Rebate, section 156(2)(a) | Lower of Rs 40,000 and Rs 60,000 | Rs 40,000 |
| Tax after rebate | Rs 0 |
What is marginal relief above Rs 12 lakh?
Without a rule for the area just above Rs 12 lakh, a person earning Rs 1 more than the limit could suddenly owe Rs 60,000. Section 156(2)(b) prevents that. If total income is above Rs 12,00,000 and the tax exceeds the amount by which income crosses Rs 12,00,000, the rebate equals that excess of tax. In effect, the tax payable cannot be more than the income above Rs 12 lakh.
Worked example 2: income of Rs 12,50,000
| Step | Working | Amount |
|---|---|---|
| Tax up to Rs 12,00,000 | As computed above | Rs 60,000 |
| Tax on Rs 50,000 above Rs 12 lakh | 15% of Rs 50,000 | Rs 7,500 |
| Tax before rebate | Rs 67,500 | |
| Income above Rs 12 lakh | Rs 12,50,000 minus Rs 12,00,000 | Rs 50,000 |
| Rebate, section 156(2)(b) | Rs 67,500 minus Rs 50,000 | Rs 17,500 |
| Tax after rebate | Rs 50,000 |
Where does the marginal relief stop? Tax is Rs 60,000 plus 15% of the income above Rs 12 lakh. It exceeds that income only while Rs 60,000 is more than 85% of the excess, that is, below about Rs 70,588 of excess. So relief ends at total income of roughly Rs 12,70,588. At Rs 12,75,000, tax is Rs 71,250 against an excess of Rs 75,000, so the tax does not exceed the excess and there is no rebate.
| Total income | Tax before rebate | Rebate | Tax after rebate |
|---|---|---|---|
| Rs 12,00,000 | Rs 60,000 | Rs 60,000 | Nil |
| Rs 12,20,000 | Rs 63,000 | Rs 43,000 | Rs 20,000 |
| Rs 12,50,000 | Rs 67,500 | Rs 17,500 | Rs 50,000 |
| Rs 12,70,000 | Rs 70,500 | Rs 500 | Rs 70,000 |
| Rs 12,75,000 | Rs 71,250 | Nil | Rs 71,250 |
What if the income includes long-term capital gains on shares?
Section 198 taxes long-term capital gains on equity shares, units of an equity oriented fund and units of a business trust (where the securities transaction tax conditions of section 198(1)(c) are met) at 12.5% on gains above Rs 1,25,000. For these gains, section 198(7) says the rebate under section 156 is allowed from the income-tax on the total income as reduced by the tax payable on such capital gains. In plain terms, the rebate is worked on the slab tax and does not wipe out the 12.5% tax on the gains.
Real-life example: Ravi sells shares
Ravi is a resident individual with Rs 10,00,000 of other total income and long-term capital gains of Rs 1,50,000 on listed shares (STT conditions met). Assume tax year 2026-27 and that all conditions of section 198 are met.
- Tax on the Rs 10,00,000 at slab rates: Rs 40,000 (as in example 1).
- Tax on the gains: Rs 1,50,000 minus Rs 1,25,000 is Rs 25,000, at 12.5% is Rs 3,125.
- Rebate, worked on the slab tax only: lower of Rs 40,000 and Rs 60,000, which is Rs 40,000.
- Tax payable: Rs 40,000 + Rs 3,125 - Rs 40,000 = Rs 3,125.
This example applies the plain reading of section 198(7). Whether the Rs 12 lakh limit in 156(2)(a) is tested on total income including the gains is a point to confirm in a real case before filing.
Real-life example: Meena and the small salary rise
Meena's total income was Rs 11,90,000 last year, so her tax was nil after the rebate. This year a raise takes her to Rs 12,40,000. She worries the whole Rs 60,000 will now be due. Under section 156(2)(b), tax before rebate is Rs 60,000 plus 15% of Rs 40,000, which is Rs 66,000. The income above Rs 12 lakh is Rs 40,000, so the rebate is Rs 26,000 and she pays Rs 40,000, not Rs 66,000. The extra tax equals the extra income and no more.
Is the rebate given when a bank deducts tax from a senior citizen?
Yes, in one place. Under section 393(1) Table Sl. No. 8(iii), a specified bank deducts tax on the total income of a specified senior citizen after giving effect to Chapter VIII deductions and the rebate under section 156, at the rates in force. Rule 208 allows the senior citizen to furnish the declaration in Form 125, and the bank computes total income after giving that effect.
What are the common mistakes with the section 156 rebate?
- Claiming it for a HUF or non-resident. The section is for resident individuals.
- Testing gross income against Rs 12 lakh. The test is total income, after allowed deductions.
- Assuming Rs 60,000 for everyone. It is the lower of tax and Rs 60,000, and only Rs 12,500 under 156(1).
- Missing marginal relief. A person just over Rs 12 lakh should still check section 156(2)(b).
- Using the rebate against tax on equity capital gains. Section 198(7) keeps the 12.5% tax on those gains outside the rebate.
- Forgetting the sub-section 156(3) cap. The rebate cannot exceed tax at section 202(1) rates.
Quick reference: section 156 at a glance
| Point | Rule | Provision |
|---|---|---|
| Who | Resident individual | 156(1), 156(2) |
| Base rebate | Lower of tax or Rs 12,500, income up to Rs 5,00,000 | 156(1) |
| Slab-rate rebate | Lower of tax or Rs 60,000, income up to Rs 12,00,000 | 156(2)(a) |
| Marginal relief | Tax in excess of income above Rs 12,00,000 | 156(2)(b) |
| Ceiling | Never more than tax | 155(2), 156(3) |
| Equity LTCG | Rebate on tax excluding tax on those gains | 198(7) |
| Bank TDS, senior citizens | Rebate considered by specified bank | 393(1) Sl. No. 8(iii), rule 208 |
Where this is in the Act
- Section 155: rebate allowed from income-tax; ceiling at tax before rebate
- Section 156: rebate of income-tax for certain individuals
- Section 202(1): slab rates for individuals and others
- Section 198(7): rebate and long-term capital gains on equity
- Section 393(1), Table Sl. No. 8(iii) and rule 208: bank TDS on specified senior citizens
How do CA firms keep track of this across clients?
The rebate matters most at the Rs 12 lakh edge, where a small change in a client's income changes the outcome. Knowing which clients are near that line, and when their return is due, is a tracking job. Finexo's practice management software keeps client records and due dates in one place for CA firms. It does not compute tax or file returns for you. For another provision in the same Act, see the guide on TDS on rent.
This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.
Frequently Asked Questions
What is the rebate under section 156 of the Income-tax Act, 2025?
It is a reduction in income-tax for a resident individual. Under section 156(2)(a), if total income taxed at section 202(1) rates is up to Rs 12,00,000, the rebate is the lower of the tax payable or Rs 60,000.
Is the 87A rebate still available under the new Act?
The rebate is now in section 156 of the Income-tax Act, 2025, which carries the same heading as the older section 87A. Work from section 156, not the old section number.
Who can claim the section 156 rebate?
Only an individual who is resident in India for the tax year. HUFs, firms, companies and non-resident individuals cannot claim it.
What happens if my income is just above Rs 12 lakh?
Section 156(2)(b) gives marginal relief. The rebate equals the amount by which your tax exceeds the income above Rs 12,00,000, so tax does not exceed that excess. At Rs 12,50,000, tax of Rs 67,500 falls to Rs 50,000.
Does the rebate apply to tax on long-term capital gains on shares?
Not to the tax on those gains. Section 198(7) allows the rebate from the tax on total income reduced by the tax payable on the capital gains covered by section 198.
What is the rebate if total income is Rs 5 lakh or less?
Under section 156(1), it is 100% of the tax payable or Rs 12,500, whichever is less, for a resident individual with total income not exceeding Rs 5,00,000.