Section 87A rebate: why income up to ₹12 lakh pays no tax in FY 2026-27
The section 87A rebate cancels income tax of up to ₹60,000 for anyone whose taxable income is ₹12,00,000 or less under the new regime in FY 2026-27. With the ₹75,000 standard deduction, that makes a salary of ₹12.75 lakh tax free. Under the old regime the rebate is ₹12,500 up to ₹5,00,000 of taxable income.
FY 2026-27 figures, rules verified 3 Sep 2026. Numbers assume basic at 40% of CTC, employer PF inside CTC and ₹2,400 professional tax unless stated.
The rebate is applied after slab tax is computed. If your slab tax is ₹58,000 and your taxable income is under the cap, the rebate wipes all of it. Health and education cess is charged on the tax after the rebate, so it is also zero.
Just above the cap, marginal relief steps in so that the extra tax never exceeds the extra income. Someone at ₹12,10,000 of taxable income pays ₹10,000, not the full ₹61,500 of slab tax.
EPF and professional tax still apply when income tax is zero, so a 12 LPA package takes home ₹90,200 a month rather than the full ₹1,00,000 of monthly CTC.
See the figure for your own salary on the in hand calculator.
Questions
Related terms
- Marginal relief — Marginal relief limits the extra tax to the extra income when taxable income crosses a threshold, so earning ₹10,000 above the ₹12 lakh rebate cap costs at most ₹10,000 of tax instead of the full slab tax of about ₹61,500.
- Standard deduction — The standard deduction is a flat amount removed from salary income before tax, with no proof required: ₹75,000 under the new regime and ₹50,000 under the old regime in FY 2026-27.
- Surcharge and cess — Health and education cess is 4% of income tax, charged on every taxpayer, which turns the 30% top slab into an effective 31.2%.