- Article 3: Section 87A Rebate FY 2025-26: The ₹60,000 Rule, Marginal Relief, and the ₹12 Lakh Cliff Explained
- Article 4: How to File ITR-1 for AY 2026-27: A Step-by-Step Guide for Salaried Indians
New vs Old Tax Regime FY 2025-26: The Honest Decision Guide for Salaried Indians
Introduction: the question everyone is asking, badly
Every year in April, a small ritual plays out in offices across India. HR sends an email asking you to declare your tax regime. You Google "new vs old tax regime which is better", open six tabs, read contradictory advice, and end up clicking whatever you clicked last year. I want to break that cycle.
The honest truth is that the answer depends on two numbers: your gross income and the total rupee value of deductions you actually claim. Not the deductions you plan to claim someday. Not the ones your neighbour claims. The ones that show up in your own Form 16 and receipts. Once we know those two numbers, the rest is arithmetic.
I have run this calculation hundreds of times for clients and friends. The pattern that emerges is surprising: for most salaried Indians earning between ₹10 lakh and ₹25 lakh, the new regime wins. Not because it is flashier — because the combination of lower slabs, higher standard deduction, and a chunky ₹60,000 rebate has quietly made the old regime uncompetitive unless you are aggressively using multiple exemptions.
| *“The old regime does not lose because it is worse. It loses because most people never actually use enough of its deductions to justify the higher slab rates.”* |
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The slabs, side by side (FY 2025-26, AY 2026-27)
Let us start with the raw material. Here are the slabs effective for income earned between 1 April 2025 and 31 March 2026.
New tax regime slabs (default)
| Income slab (₹) | Tax rate |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Old tax regime slabs (optional)
| Income slab (₹) | Below 60 yrs | Senior (60-80) | Super senior (80+) |
|---|---|---|---|
| Up to 2,50,000 | Nil | Nil | Nil |
| 2,50,001 to 3,00,000 | 5% | Nil | Nil |
| 3,00,001 to 5,00,000 | 5% | 5% | Nil |
| 5,00,001 to 10,00,000 | 20% | 20% | 20% |
| Above 10,00,000 | 30% | 30% | 30% |
Add a 4% health and education cess on top of the computed tax under both regimes. Surcharge kicks in above ₹50 lakh, which I am keeping out of this guide for clarity.
The ₹60,000 rebate that changes everything
Section 87A is the single most talked-about provision of Budget 2025. Under the new regime, a resident individual with total income up to ₹12 lakh gets a full rebate on the tax computed — up to ₹60,000. Since the tax on ₹12 lakh under the new regime slabs is exactly ₹60,000, the effective tax liability becomes zero.
For a salaried person, the standard deduction of ₹75,000 pushes the effective tax-free ceiling of gross salary to ₹12.75 lakh. That is a meaningful threshold. If you earn ₹12.5 lakh cost-to-company and your taxable income after standard deduction is ₹11.75 lakh, you owe the government nothing.
| How the rebate works mechanically 1. Compute your total income for the year (say ₹11.8 lakh after standard deduction). 2. Apply the new regime slabs: tax comes to ₹58,000. 3. Section 87A rebate of up to ₹60,000 applies since total income ≤ ₹12 lakh. 4. Net tax before cess: ₹58,000 − ₹58,000 = Nil. 5. Add 4% cess on nil = nil. Total tax payable: Zero. |
|---|
Under the old regime, the Section 87A rebate is capped at ₹12,500 and applies only up to ₹5 lakh of taxable income. That is a meaningful gap — the old regime rebate is five times smaller.
What the new regime takes away — and what it keeps
This is where most confusion lives. The new regime is often described as "no deductions allowed", which is a half-truth that misleads a lot of people. Let me be precise.
Deductions you lose under the new regime
- Section 80C (₹1.5 lakh) — LIC, ELSS, PPF, EPF, home loan principal, tuition fees, etc.
- Section 80D — health insurance premium for self, family, parents
- Section 80CCD(1) and 80CCD(1B) — your own NPS contribution and the extra ₹50,000
- Section 24(b) — home loan interest up to ₹2 lakh on self-occupied property
- Section 10(13A) — HRA exemption
- Section 10(5) — Leave Travel Allowance (LTA)
- Section 80E — education loan interest
- Section 80G — most donations
- Section 80TTA and 80TTB — savings account and senior citizen interest deductions
- Professional tax and entertainment allowance
Deductions that survive under the new regime
- Standard deduction of ₹75,000 for salaried employees and pensioners
- Family pension standard deduction of ₹25,000 (earlier ₹15,000)
- Section 80CCD(2) — employer contribution to NPS, now up to 14% of basic + DA for all employees (government and private)
- Section 80CCH — Agniveer Corpus Fund contributions
- Section 80JJAA — additional employee cost deduction (for employers)
- Home loan interest on let-out property under Section 24(b), subject to loss set-off limits
- Transport allowance for specially-abled employees
- Conveyance allowance for duties performed
- Gratuity, leave encashment exemptions on retirement (up to specified limits)
- Gifts up to ₹50,000
| *“Section 80CCD(2) is the quiet hero of the new regime. If your CTC includes a 10-14% NPS component, you get that deduction in the new regime too — and most employees have no idea.”* |
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Worked example 1: Rahul, ₹15 lakh salaried IT engineer in Bengaluru
Rahul works at a mid-sized IT services firm in Whitefield. His gross salary for FY 2025-26 is ₹15,00,000. He pays ₹22,000 a month rent for a 2BHK flat, which is ₹2,64,000 a year. His employer offers HRA of ₹3,60,000. He invests ₹1,50,000 in ELSS, pays ₹22,000 for family health insurance, and has no home loan.
Calculation under the old regime
| Particulars | Amount (₹) |
|---|---|
| Gross salary | 15,00,000 |
| Less: Standard deduction | (50,000) |
| Less: HRA exemption (least of three limits — here, rent paid minus 10% of basic) | (1,34,000) |
| Less: Section 80C (ELSS) | (1,50,000) |
| Less: Section 80D (health insurance) | (22,000) |
| Taxable income | 11,44,000 |
| Tax on first ₹2.5 lakh | Nil |
| Tax on ₹2.5L to ₹5L at 5% | 12,500 |
| Tax on ₹5L to ₹10L at 20% | 1,00,000 |
| Tax on ₹10L to ₹11.44L at 30% | 43,200 |
| Total tax before cess | 1,55,700 |
| Add: 4% cess | 6,228 |
| Total tax liability (old regime) | 1,61,928 |
Calculation under the new regime
| Particulars | Amount (₹) |
|---|---|
| Gross salary | 15,00,000 |
| Less: Standard deduction | (75,000) |
| Taxable income | 14,25,000 |
| Tax on first ₹4 lakh | Nil |
| Tax on ₹4L to ₹8L at 5% | 20,000 |
| Tax on ₹8L to ₹12L at 10% | 40,000 |
| Tax on ₹12L to ₹14.25L at 15% | 33,750 |
| Total tax before cess | 93,750 |
| Less: Section 87A rebate (not eligible — income above ₹12 lakh) | Nil |
| Add: 4% cess | 3,750 |
| Total tax liability (new regime) | 97,500 |
| Verdict for Rahul New regime saves him ₹64,428 per year compared to the old regime. Even with HRA + 80C + 80D fully claimed, the old regime cannot beat the combination of wider new-regime slabs and a larger standard deduction at ₹15 lakh income. For Rahul to prefer the old regime, he would need an additional ~₹2 lakh deduction — typically from a home loan or substantially higher HRA. |
|---|
Worked example 2: Priya, ₹22 lakh marketing manager with home loan in Pune
Priya earns ₹22,00,000 gross salary. She bought a 2BHK in Wakad two years ago. Her home loan interest for FY 2025-26 is ₹2,85,000 (she will claim up to the ₹2 lakh cap). Her basic salary is ₹9,00,000, and her employer contributes 10% of basic — ₹90,000 — to her NPS account under 80CCD(2). She does not pay rent (she lives in her own flat, self-occupied). She invests ₹1,50,000 in PPF and ELSS combined, and pays ₹35,000 for health insurance covering herself, her husband, and her parents.
Calculation under the old regime
| Particulars | Amount (₹) |
|---|---|
| Gross salary | 22,00,000 |
| Less: Standard deduction | (50,000) |
| Less: Section 24(b) — home loan interest (capped at ₹2 lakh) | (2,00,000) |
| Less: Section 80C (PPF + ELSS) | (1,50,000) |
| Less: Section 80D (₹25,000 self + ₹50,000 senior parents — here ₹35,000 total) | (35,000) |
| Less: Section 80CCD(2) — employer NPS | (90,000) |
| Taxable income | 16,75,000 |
| Tax on first ₹2.5 lakh | Nil |
| Tax on ₹2.5L to ₹5L at 5% | 12,500 |
| Tax on ₹5L to ₹10L at 20% | 1,00,000 |
| Tax on ₹10L to ₹16.75L at 30% | 2,02,500 |
| Total tax before cess | 3,15,000 |
| Add: 4% cess | 12,600 |
| Total tax liability (old regime) | 3,27,600 |
Calculation under the new regime
| Particulars | Amount (₹) |
|---|---|
| Gross salary | 22,00,000 |
| Less: Standard deduction | (75,000) |
| Less: Section 80CCD(2) — employer NPS (survives in new regime) | (90,000) |
| Taxable income | 20,35,000 |
| Tax on first ₹4 lakh | Nil |
| Tax on ₹4L to ₹8L at 5% | 20,000 |
| Tax on ₹8L to ₹12L at 10% | 40,000 |
| Tax on ₹12L to ₹16L at 15% | 60,000 |
| Tax on ₹16L to ₹20L at 20% | 80,000 |
| Tax on ₹20L to ₹20.35L at 25% | 8,750 |
| Total tax before cess | 2,08,750 |
| Add: 4% cess | 8,350 |
| Total tax liability (new regime) | 2,17,100 |
| Verdict for Priya New regime saves her ₹1,10,500 per year despite her home loan and multiple deductions. This illustrates an important point: once income crosses roughly ₹18-20 lakh, the old regime becomes hard to justify unless deductions approach ₹4.5 lakh or more. Priya should also use her ₹90,000 NPS employer contribution as a talking point with HR — many companies will increase this up to 14% of basic on request, which is a tax-free boost. |
|---|
When does the old regime actually win?
I do not want to give the impression that the old regime is always inferior. It wins in specific, identifiable patterns. Here are the most common ones I see in practice.
Pattern 1: Metro tenant with home loan in another city
If you work in Mumbai or Bengaluru paying ₹45,000+ monthly rent, and you also service a home loan on property in your hometown where your parents live, you can claim both HRA and home loan interest under the old regime. The combined deduction can easily touch ₹5-6 lakh. At that level, the old regime usually beats the new regime up to about ₹25 lakh salary.
Pattern 2: Senior citizens with substantial 80TTB interest
Senior citizens enjoy a ₹50,000 deduction on bank interest under Section 80TTB, which is not available under the new regime. Combined with a ₹3 lakh basic exemption (old regime for seniors) and medical insurance under 80D (up to ₹50,000 for senior parents), the old regime can remain attractive even at moderate income levels for retirees.
Pattern 3: Heavy 80C + 80D + 80CCD(1B) users
If you max out ₹1.5 lakh under 80C, add ₹50,000 under 80CCD(1B), claim ₹75,000 under 80D (₹25,000 self + ₹50,000 senior parents), and have ₹2 lakh home loan interest, your total deductions reach ₹4.75 lakh. For incomes between ₹12 lakh and ₹20 lakh, this pattern can tip the old regime into a win.
| The rough rule of thumb Break-even deduction at ₹10 lakh income: ~₹2.5 lakh Break-even deduction at ₹15 lakh income: ~₹3.5 lakh Break-even deduction at ₹20 lakh income: ~₹4 lakh Break-even deduction at ₹30 lakh income: ~₹5 lakh If your total legitimate deductions exceed these thresholds, the old regime may win. Always run the exact numbers — this is a rule of thumb, not a law. |
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Common mistakes I see every tax season
Mistake 1: Choosing a regime based on planned deductions, not actual ones
People declare old regime to HR in April intending to invest ₹1.5 lakh in ELSS, then by December have only invested ₹40,000. Now TDS has been deducted on a lower income assumption, and they either scramble to invest more in Q4 or have a big refund to chase. Better: assume you will only claim what you actually have proof for, and revisit in January.
Mistake 2: Ignoring the employer NPS contribution under 80CCD(2)
This deduction works in both regimes, has no cap on top of 80C, and goes up to 14% of basic plus DA from FY 2025-26. If your employer does not currently contribute to NPS, many companies will add this as a flexi-basket option. Ask your HR. It is the easiest ₹70,000 to ₹1.5 lakh deduction most employees never claim.
Mistake 3: Forgetting that the choice is per-year for salaried individuals
If your situation changes — new home loan, parents become senior citizens, marriage, new baby — the tax maths changes. Review every April and do not assume last year’s choice is still right.
Mistake 4: Claiming 80C investments just to save tax
Buying an endowment insurance policy for the ₹25,000 Section 80C deduction when the policy itself gives 4% returns is a bad trade. The deduction saves you ₹7,500 in tax but the opportunity cost over 15 years is much larger. Separate the tax question from the investment question. Many 80C investments are poor investments, and the new regime ironically frees you from that trap.
Mistake 5: Not using marginal relief above ₹12 lakh
If your income crosses ₹12 lakh slightly — say to ₹12.3 lakh — marginal relief ensures you do not pay more tax than the incremental income above ₹12 lakh. This is built into the law and the ITR utility handles it automatically, but many people are not aware and worry unnecessarily about the cliff.
How to run your own numbers in ten minutes
- Open the Income Tax Department calculator at incometax.gov.in (under Quick Links → Tax Calculator). It is free, updated annually, and handles both regimes.
- Pick up your latest Form 16 or salary slip. Note gross salary, HRA component, employer NPS contribution if any.
- List your deductions with actual amounts: PPF paid, ELSS bought, insurance premium receipts, home loan interest certificate.
- Run the calculator twice — once with "Old Regime" selected, once with "New Regime". Enter the same income, select the regime, and populate deductions only in the old regime calculation.
- Note the net tax liability under each. The difference is your choice.
- If the old regime wins by less than ₹5,000, consider the new regime anyway — the simplicity, fewer audit triggers, and freedom from tracking documentation is worth that margin for many people.
| *“Simplicity has value. A ₹5,000 saving that costs you six hours of paperwork and a shoebox of receipts is not really a saving.”* |
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A practical takeaway you can act on this week
If you are a salaried employee earning between ₹10 lakh and ₹25 lakh with no home loan on self-occupied property, run the calculator with your actual deductions. In roughly 8 out of 10 cases in this range, the new regime wins by ₹30,000 to ₹1.5 lakh. Do not let inertia cost you that money.
If you are an owner-occupier with a home loan, a senior citizen with high 80TTB interest, or a metro tenant with substantial HRA, the old regime may still make sense — but verify, do not assume.
And if your employer does not contribute to NPS on your behalf, ask them to add it. Fourteen percent of basic, tax-free, under both regimes. It is the closest thing to free money in Indian tax law.
Key Takeaways
- The new regime is now the default, with a full tax rebate for income up to ₹12 lakh (₹12.75 lakh for salaried after standard deduction).
- The old regime wins only if your legitimate deductions exceed roughly ₹4 lakh at most income levels — that is a higher bar than most people realise.
- Standard deduction of ₹75,000 (new regime) versus ₹50,000 (old regime) is a quiet advantage that shifts several cases toward the new regime.
- Section 80CCD(2) — employer NPS contribution up to 14% of basic — is available under both regimes and is the single biggest legitimate deduction left in the new regime.
- Salaried employees can switch regimes every year; business income earners can switch only once. Plan accordingly.
- Do not pick a regime based on what your colleague chose — their deduction pattern is not yours. Run your own numbers.
Frequently Asked Questions
Can I switch from the new regime back to the old regime next year?
Yes, if you are a salaried individual or pensioner with no business income, you can switch between the two regimes every single financial year. This is one of the most underappreciated flexibilities in Indian income tax. For people with business or professional income, the rules are stricter — you can opt out of the new regime only once in a lifetime, and re-entry is limited. So if you are a salaried employee, your choice this year is not a permanent one. Run the numbers again next April when you know your actual deductions.
Is the ₹12 lakh tax-free income in the new regime really tax-free?
Yes, practically speaking — but through a rebate, not a zero slab. Here is how it works: under the new regime, income up to ₹4 lakh pays no tax by the slab itself. From ₹4 lakh to ₹12 lakh, the computed tax comes to ₹60,000. Section 87A rebate wipes out exactly that ₹60,000 for resident individuals with total income up to ₹12 lakh. So your net tax becomes zero. For salaried employees, add the ₹75,000 standard deduction and the effective tax-free ceiling rises to ₹12.75 lakh of gross salary. Cross ₹12 lakh by even ₹1 and the rebate disappears, though marginal relief softens the cliff somewhat.
I pay ₹1.5 lakh home loan interest and ₹1.5 lakh into ELSS. Should I stay on the old regime?
Not necessarily. Do the full math. At ₹15 lakh salary, the new regime taxes you roughly ₹97,500 after rebate. On the old regime, even with ₹1.5 lakh Section 80C + ₹2 lakh Section 24(b) on a self-occupied home loan + ₹25,000 Section 80D, your taxable income is roughly ₹11.25 lakh (after standard deduction of ₹50,000), which attracts tax of around ₹1,48,500. The new regime saves you about ₹51,000 in this case. The old regime starts winning only when your combined legitimate deductions cross roughly ₹4 lakh — that usually means home loan + 80C fully used + 80D + HRA exemption.
Does HRA count in the new regime?
No. House Rent Allowance (HRA) exemption under Section 10(13A) is one of the biggest casualties of the new regime. If you are a metro-city tenant paying ₹40,000 a month rent and your HRA component is substantial, the old regime becomes more compelling. For a Bengaluru or Mumbai renter earning ₹18 lakh with ₹4.8 lakh annual rent, the HRA exemption alone can be ₹2.5 lakh to ₹3 lakh — that tips the scales.
What is the latest date I can change my regime choice?
For salaried employees, the declaration to your employer happens at the start of the financial year and guides TDS. But the final, binding choice is made when you file your ITR. If you told HR "old regime" in April 2025 but you file your return in July 2026 under the new regime, the new regime applies — the TDS already deducted gets reconciled in your refund or balance due. So the real deadline is your ITR filing due date, which for non-audit individuals is 31 July 2026 for AY 2026-27.
Internal Links
These related articles will help you go deeper:
- Income Tax Slabs FY 2025-26: Complete Breakdown → /income-tax-slabs-fy-2025-26
- Section 87A Rebate Explained with Marginal Relief Math → /section-87a-rebate-fy-2025-26
- Standard Deduction ₹75,000: What Salaried Need to Know → /standard-deduction-new-regime
- How to File ITR-1 for AY 2026-27: Step-by-Step → /how-to-file-itr-1-ay-2026-27
- Section 80C Investments Ranked Honestly → /section-80c-investments-ranked
Authoritative External References
- Income Tax Department — incometax.gov.in (official e-filing portal and circulars)
- Finance Act 2025 and Budget 2026 speech on indiabudget.gov.in
- CBDT circulars on Section 115BAC applicability
- Press Information Bureau (pib.gov.in) — Budget 2025 and 2026 announcements
Image Brief for Designer
Image 1: Flat-design infographic showing two funnels side by side — "New Regime" (blue) and "Old Regime" (orange) — with rupee amounts flowing through each. Dimensions 1200x630 for social sharing.
Image 2: Comparison table rendered as graphic: 3 columns (Deduction, Old Regime, New Regime) with green ticks and red crosses. Use brand colors, 1080x1080 for Instagram.
Image 3: Decision flowchart PNG: "Start here → Do you pay rent in metro? → Do you have home loan? → Is 80C fully used? → Verdict". Height 1600px, Pinterest-friendly.
Schema Markup Specification
Use Article schema with headline, datePublished, dateModified, author (Person), publisher, image, wordCount. Nest FAQPage schema for the FAQ section — each Q**&**A as a separate Question and Answer node. For the calculation examples, mark up with HowTo schema showing the steps to decide which regime to choose.
Author Bio
Written by a Chartered Accountant with over a decade of practice in direct tax, including advisory on regime selection for salaried professionals and small business owners. Views are personal and based on statutes and circulars effective as of the date of publication. The author does not hold a SEBI or IRDAI registration and does not provide investment or insurance recommendations.
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Compliance Disclaimer
| *This article is for informational and educational purposes only. It is not tax advice for your specific circumstances. Tax laws change, and individual facts matter. Before acting on any information here, consult a qualified Chartered Accountant or the Income Tax Department helpline. The author and publisher are not responsible for decisions made solely on the basis of this article.* |
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Freshness Commitment
This article was last verified on 24 April 2026 against the Income Tax Department website, Budget 2026 announcements, and current CBDT circulars. It will be refreshed within seven days of any material amendment to slabs, rebates, or deduction rules, and fully reviewed every quarter.
Income Tax Slabs for FY 2025-26 (AY 2026-27): The Complete Breakdown with Rupee Examples
Who should read this
You want to know, clearly and without fluff, what tax rate applies to each rupee of your income for FY 2025-26 (the year ending 31 March 2026) and how the slabs translate into actual tax payable. This guide is for salaried employees, freelancers, pensioners, and anyone who wants to verify their TDS or self-assessment tax computation. I will keep it factual — separate articles will cover the regime choice, deductions, and filing process.
Introduction: slabs are the building blocks of your tax
Before you worry about deductions, regime choice, or filing forms, you need to understand what tax rate applies to each rupee of your income. That is what "tax slabs" means — the government splits your income into brackets and charges a different rate in each bracket. In this article, I walk through the slabs for FY 2025-26, the rebates and cess that sit on top, and four worked examples from ₹8 lakh salary up to ₹50 lakh so you can see exactly how the maths works.
What changed in Budget 2026
The Union Budget 2026 was presented on 1 February 2026 by the Finance Minister. For FY 2025-26 (the year that had already begun), the slab structure introduced in Budget 2025 was retained without change. Budget 2026 made procedural tweaks — extending revised return deadlines and adjusting some compliance timelines — but the tax rates, rebates, and surcharge brackets for FY 2025-26 are the same ones announced in Budget 2025.
The bigger change on the horizon is the Income Tax Act 2025, which comes into force from 1 April 2026. That governs FY 2026-27 and later. For the return you are filing this year — for income earned in FY 2025-26 — the Income Tax Act 1961 still applies. So everything in this article is based on the 1961 Act.
New tax regime slabs for FY 2025-26 (the default)
The new regime is now the default. If you do not expressly opt for the old regime, the new regime applies to you automatically. Here are the slabs.
| Income slab (₹) | Tax rate | Tax on slab |
|---|---|---|
| 0 to 4,00,000 | 0% | Nil |
| 4,00,001 to 8,00,000 | 5% | Up to ₹20,000 |
| 8,00,001 to 12,00,000 | 10% | Up to ₹40,000 |
| 12,00,001 to 16,00,000 | 15% | Up to ₹60,000 |
| 16,00,001 to 20,00,000 | 20% | Up to ₹80,000 |
| 20,00,001 to 24,00,000 | 25% | Up to ₹1,00,000 |
| Above 24,00,000 | 30% | 30% of excess |
| Important for salaried employees The ₹75,000 standard deduction is applied first, before computing tax on the slab. So a salaried person earning ₹12.75 lakh gross has taxable income of ₹12 lakh, on which tax of ₹60,000 is offset by the Section 87A rebate of ₹60,000. Net tax: zero. |
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Old tax regime slabs for FY 2025-26 (optional)
The old regime remains available for those who prefer to use Chapter VI-A deductions, HRA exemption, home loan interest, and so on. Here are the slabs.
For individuals below 60 years (and HUFs)
| Income slab (₹) | Tax rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
For senior citizens (60 to 80 years)
| Income slab (₹) | Tax rate |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
For super senior citizens (above 80 years)
| Income slab (₹) | Tax rate |
|---|---|
| Up to 5,00,000 | Nil |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Standard deduction under the old regime is ₹50,000 for salaried employees and pensioners. Note that these age-based higher exemptions do not exist under the new regime — everyone gets the same ₹4 lakh threshold.
Section 87A rebate: the big difference between regimes
Section 87A gives a resident individual a full rebate on their computed tax up to a limit. The limit differs sharply between the two regimes.
| Parameter | New regime | Old regime |
|---|---|---|
| Maximum rebate | ₹60,000 | ₹12,500 |
| Total income threshold | Up to ₹12,00,000 | Up to ₹5,00,000 |
| Applies to | Resident individuals | Resident individuals |
| Excluded income | Long-term capital gains on equity (Sec 112A) | LTCG on equity (Sec 112A) |
| *“The ₹60,000 rebate is effectively a “tax-free income upto ₹12 lakh” for resident individuals — a quiet but transformative provision.”* |
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The 4% health and education cess
After computing your tax and applying the Section 87A rebate (if any), add 4% of the resulting amount as health and education cess. This applies under both regimes and is never rebated. If your net tax is zero (because of the rebate), cess is also zero.
Surcharge for high incomes
Above ₹50 lakh income, a surcharge applies as a percentage of the tax (not the income). The percentages differ slightly between the two regimes.
| Income range (₹) | New regime | Old regime |
|---|---|---|
| 50 lakh to 1 crore | 10% | 10% |
| 1 crore to 2 crore | 15% | 15% |
| 2 crore to 5 crore | 25% | 25% |
| Above 5 crore | 25% | 37% |
Note that for certain capital gains (LTCG under Section 112A) and dividend income, the surcharge is capped at 15% irrespective of income level. Marginal relief is available to ensure the additional surcharge does not exceed the income that crossed the threshold.
Worked example 1: Anjali, ₹8 lakh salary in Hyderabad
Anjali is a graphic designer earning ₹8,00,000 gross. She has no investments, no rent claim, no home loan. What is her tax?
New regime
| Step | Amount (₹) |
|---|---|
| Gross salary | 8,00,000 |
| Less: Standard deduction | (75,000) |
| Taxable income | 7,25,000 |
| Tax on ₹0 to ₹4L @ 0% | Nil |
| Tax on ₹4L to ₹7.25L @ 5% | 16,250 |
| Tax before rebate | 16,250 |
| Less: Section 87A rebate (income ≤ ₹12L) | (16,250) |
| Tax after rebate | Nil |
| Add: 4% cess | Nil |
| Total tax liability | Zero |
Old regime
| Step | Amount (₹) |
|---|---|
| Gross salary | 8,00,000 |
| Less: Standard deduction | (50,000) |
| Taxable income | 7,50,000 |
| Tax on ₹0 to ₹2.5L @ 0% | Nil |
| Tax on ₹2.5L to ₹5L @ 5% | 12,500 |
| Tax on ₹5L to ₹7.5L @ 20% | 50,000 |
| Tax before rebate | 62,500 |
| Less: Section 87A rebate (income > ₹5L) | Nil |
| Add: 4% cess | 2,500 |
| Total tax liability | 65,000 |
| Verdict New regime saves Anjali ₹65,000 — essentially her entire old-regime liability. At ₹8 lakh salary with no deductions, the new regime is a no-brainer. |
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Worked example 2: Vikram, ₹25 lakh salary in Gurugram
Vikram is a senior product manager. His gross salary is ₹25,00,000. He has no home loan, does not claim HRA (lives with parents), invests ₹1.5 lakh in ELSS, and pays ₹40,000 health insurance premium. His employer contributes ₹1,20,000 to his NPS under 80CCD(2).
New regime
| Step | Amount (₹) |
|---|---|
| Gross salary | 25,00,000 |
| Less: Standard deduction | (75,000) |
| Less: Section 80CCD(2) (employer NPS) | (1,20,000) |
| Taxable income | 23,05,000 |
| Tax on ₹0 to ₹4L @ 0% | Nil |
| Tax on ₹4L to ₹8L @ 5% | 20,000 |
| Tax on ₹8L to ₹12L @ 10% | 40,000 |
| Tax on ₹12L to ₹16L @ 15% | 60,000 |
| Tax on ₹16L to ₹20L @ 20% | 80,000 |
| Tax on ₹20L to ₹23.05L @ 25% | 76,250 |
| Tax before cess | 2,76,250 |
| Add: 4% cess | 11,050 |
| Total tax liability | 2,87,300 |
Old regime
| Step | Amount (₹) |
|---|---|
| Gross salary | 25,00,000 |
| Less: Standard deduction | (50,000) |
| Less: Section 80C (ELSS) | (1,50,000) |
| Less: Section 80D | (40,000) |
| Less: Section 80CCD(2) (employer NPS) | (1,20,000) |
| Taxable income | 21,40,000 |
| Tax on ₹0 to ₹2.5L @ 0% | Nil |
| Tax on ₹2.5L to ₹5L @ 5% | 12,500 |
| Tax on ₹5L to ₹10L @ 20% | 1,00,000 |
| Tax on ₹10L to ₹21.4L @ 30% | 3,42,000 |
| Tax before cess | 4,54,500 |
| Add: 4% cess | 18,180 |
| Total tax liability | 4,72,680 |
| Verdict New regime saves Vikram ₹1,85,380 per year. Even with ₹1.9 lakh of deductions, the old regime at 30% top rate cannot beat the new regime. For Vikram to prefer the old regime, he would need another ₹6-7 lakh of deductions — which is impractical. |
|---|
Worked example 3: Mrs. Sharma, ₹12 lakh pension as a senior citizen in Jaipur
Mrs. Sharma is 68 years old. Her annual pension is ₹12,00,000. She earns ₹1,50,000 interest from bank FDs and senior citizen savings schemes. She pays ₹30,000 for her own health insurance and ₹40,000 for her husband who is 72. She has ₹1,00,000 in PPF contributions.
Total gross income: ₹12 lakh pension + ₹1.5 lakh interest = ₹13,50,000.
New regime
| Step | Amount (₹) |
|---|---|
| Pension income | 12,00,000 |
| Less: Standard deduction (pension) | (75,000) |
| Interest income | 1,50,000 |
| Taxable income | 12,75,000 |
| Tax on ₹0 to ₹4L @ 0% | Nil |
| Tax on ₹4L to ₹8L @ 5% | 20,000 |
| Tax on ₹8L to ₹12L @ 10% | 40,000 |
| Tax on ₹12L to ₹12.75L @ 15% | 11,250 |
| Tax before rebate | 71,250 |
| Section 87A rebate (income > ₹12L — not applicable) | Nil |
| Add: 4% cess | 2,850 |
| Total tax liability | 74,100 |
Old regime
| Step | Amount (₹) |
|---|---|
| Pension income | 12,00,000 |
| Less: Standard deduction (pension) | (50,000) |
| Interest income | 1,50,000 |
| Less: Section 80TTB (senior citizen — bank interest up to ₹50,000) | (50,000) |
| Less: Section 80C (PPF) | (1,00,000) |
| Less: Section 80D (self ₹30K + senior spouse up to ₹50K = ₹70K, claimed actual) | (70,000) |
| Taxable income | 10,80,000 |
| Tax on ₹0 to ₹3L (senior) @ 0% | Nil |
| Tax on ₹3L to ₹5L @ 5% | 10,000 |
| Tax on ₹5L to ₹10L @ 20% | 1,00,000 |
| Tax on ₹10L to ₹10.8L @ 30% | 24,000 |
| Tax before cess | 1,34,000 |
| Add: 4% cess | 5,360 |
| Total tax liability | 1,39,360 |
| Verdict New regime saves Mrs. Sharma ₹65,260 despite her having ₹2.2 lakh of old-regime-only deductions. Even senior citizens — who have the ₹3 lakh basic exemption and ₹50K 80TTB advantage on the old regime — often come out ahead on the new regime now. However, if her interest income were much higher (say ₹4 lakh from FDs), the 80TTB benefit would matter more and the old regime could become competitive. |
|---|
Worked example 4: Karan, ₹50 lakh salary in Mumbai (surcharge territory)
Karan earns ₹50,00,000 gross. His employer NPS contribution is ₹3,00,000 (14% of ₹21,42,857 basic — maxed out). He claims ₹1.5 lakh Section 80C, ₹50,000 health insurance, and ₹2 lakh home loan interest on his Worli flat. HRA is not applicable — he owns his home.
New regime
| Step | Amount (₹) |
|---|---|
| Gross salary | 50,00,000 |
| Less: Standard deduction | (75,000) |
| Less: Section 80CCD(2) | (3,00,000) |
| Taxable income | 46,25,000 |
| Tax on ₹0-4L @ 0% / ₹4-8L @ 5% / ₹8-12L @ 10% / ₹12-16L @ 15% / ₹16-20L @ 20% / ₹20-24L @ 25% | 3,00,000 |
| Tax on ₹24L to ₹46.25L @ 30% | 6,67,500 |
| Tax before cess and surcharge | 9,67,500 |
| Surcharge (income below ₹50L — nil) | Nil |
| Add: 4% cess | 38,700 |
| Total tax liability | 10,06,200 |
Old regime
| Step | Amount (₹) |
|---|---|
| Gross salary | 50,00,000 |
| Less: Standard deduction | (50,000) |
| Less: Section 24(b) home loan interest | (2,00,000) |
| Less: Section 80C | (1,50,000) |
| Less: Section 80D | (50,000) |
| Less: Section 80CCD(2) | (3,00,000) |
| Taxable income | 42,50,000 |
| Tax on ₹0-2.5L nil / ₹2.5-5L @ 5% / ₹5-10L @ 20% / ₹10-42.5L @ 30% | 11,87,500 |
| Add: 4% cess | 47,500 |
| Total tax liability | 12,35,000 |
| Verdict New regime saves Karan ₹2,28,800 per year. Below ₹50 lakh, no surcharge applies under either regime. At this income level, the new regime wins by a wide margin because the 30% slab kicks in much later (₹24 lakh vs ₹10 lakh). |
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Common mistakes when computing tax from slabs
Mistake 1: Applying the top slab rate to entire income
People sometimes think that if their income is ₹15 lakh, the whole amount is taxed at 15%. That is wrong. Slabs are marginal — only the portion of income that falls in each slab is taxed at that slab rate. On ₹15 lakh under the new regime, only the ₹3 lakh above ₹12 lakh attracts 15%. The rest is taxed at lower rates.
Mistake 2: Forgetting cess
Cess is 4% of the tax amount, and it is often overlooked when budgeting. If your computed tax is ₹1 lakh, cess adds ₹4,000 — your total outflow is ₹1,04,000. People running rough tax calculations frequently miss this.
Mistake 3: Confusing rebate with exemption
An exemption means income is not taxed in the first place. A rebate means tax is computed and then forgiven. The Section 87A rebate under the new regime is a rebate, not an exemption. This matters: if you are a non-resident Indian, you are not eligible for the Section 87A rebate, so the ₹4 lakh slab remains your true tax-free ceiling. A common mistake NRIs make is assuming the ₹12 lakh tax-free threshold applies to them — it does not.
Mistake 4: Missing the marginal relief above ₹12 lakh
If your total income crosses ₹12 lakh by a small amount, say to ₹12,10,000, you would naively compute tax of about ₹61,500 and lose the full ₹60,000 rebate — a jump from zero to ₹61,500 for ₹10,000 of extra income. Marginal relief under Section 87A caps the additional tax to the excess income itself. So on ₹12,10,000 income, the additional tax cannot exceed ₹10,000. The e-filing utility applies this automatically, but it helps to know it exists so you do not panic at the rebate cliff.
Mistake 5: Mixing up financial year and assessment year
Income earned in FY 2025-26 (1 April 2025 to 31 March 2026) is reported and assessed in AY 2026-27. When filing ITR, the form asks for AY 2026-27. Selecting the wrong AY is one of the most common rookie mistakes on the e-filing portal.
A practical takeaway you can use this month
Write down your expected gross income for FY 2025-26, subtract the ₹75,000 standard deduction if salaried, and run the slab calculation by hand. You will find that the new regime is transparent: no hunting for deductions, no receipts to store, no regime-switching games. If you pay tax above ₹1 lakh, spend ten minutes doing this on paper or in the IT Department calculator before blindly trusting your HR software.
And one small thing — always keep the Income Tax Department portal open in a tab during this exercise. The slabs can be tweaked mid-year through a mini-budget in rare years, and the official calculator is the single source of truth.
Key Takeaways
- The new tax regime slabs for FY 2025-26 range from 0% (up to ₹4 lakh) to 30% (above ₹24 lakh).
- The old tax regime slabs are unchanged — 0%, 5%, 20%, 30% — with a basic exemption of ₹2.5 lakh for those below 60 years.
- Senior citizens get a ₹3 lakh basic exemption and super seniors get ₹5 lakh under the old regime only.
- Section 87A rebate goes up to ₹60,000 under the new regime (income up to ₹12 lakh) and ₹12,500 under the old regime (income up to ₹5 lakh).
- A 4% health and education cess applies on top of the computed tax under both regimes.
- Surcharge kicks in above ₹50 lakh income: 10% / 15% / 25% brackets under both regimes; the 37% slab has been removed under the new regime.
Frequently Asked Questions
What are the tax slabs for FY 2025-26 under the new regime?
Under the new tax regime for FY 2025-26 (AY 2026-27): income up to ₹4 lakh is nil; ₹4-8 lakh is 5%; ₹8-12 lakh is 10%; ₹12-16 lakh is 15%; ₹16-20 lakh is 20%; ₹20-24 lakh is 25%; and above ₹24 lakh is 30%. A 4% cess applies on the computed tax. Salaried individuals also get a ₹75,000 standard deduction and can claim a full Section 87A rebate of up to ₹60,000 on income up to ₹12 lakh.
Have the old regime slabs changed for FY 2025-26?
No. The old regime slabs remain unchanged: nil up to ₹2.5 lakh, 5% from ₹2.5 to ₹5 lakh, 20% from ₹5 to ₹10 lakh, and 30% above ₹10 lakh. Senior citizens (60-80 years) have a ₹3 lakh basic exemption, and super seniors (above 80 years) have a ₹5 lakh basic exemption. Standard deduction under the old regime remains ₹50,000 for salaried individuals and pensioners.
What is the surcharge for high incomes in FY 2025-26?
Surcharge applies to both regimes above ₹50 lakh. Under the new regime: 10% for ₹50 lakh to ₹1 crore, 15% for ₹1 crore to ₹2 crore, and 25% above ₹2 crore (the 37% tier was removed). Under the old regime: 10%, 15%, 25%, and 37% apply to the respective brackets. Note that surcharge rates for capital gains and dividend income are capped at 15% under specific sections.
How do I calculate tax on ₹15 lakh salary under the new regime?
On a ₹15 lakh gross salary, first deduct the ₹75,000 standard deduction — taxable income becomes ₹14.25 lakh. Apply the slabs: nil on first ₹4 lakh, 5% of ₹4 lakh (₹20,000), 10% of ₹4 lakh (₹40,000), and 15% of ₹2.25 lakh (₹33,750). Total tax: ₹93,750. Add 4% cess: ₹3,750. Final tax liability: ₹97,500. Since income exceeds ₹12 lakh, Section 87A rebate does not apply.
When does FY 2025-26 begin and end?
The financial year 2025-26 runs from 1 April 2025 to 31 March 2026. The corresponding assessment year is AY 2026-27, for which ITR filing begins around 1 April 2026 and the due date for non-audit individual taxpayers is 31 July 2026. The Income Tax Act 2025 comes into effect from 1 April 2026, but it applies to income of FY 2026-27 onwards. FY 2025-26 is assessed under the Income Tax Act 1961.
Internal Links
These related articles will help you go deeper:
- New vs Old Tax Regime FY 2025-26: Decision Guide → /new-vs-old-tax-regime-fy-2025-26-decision-guide
- Section 87A Rebate Explained with Marginal Relief → /section-87a-rebate-fy-2025-26
- Surcharge on Income Tax: Brackets and Computation → /income-tax-surcharge-fy-2025-26
- How to File ITR-1 for AY 2026-27 → /how-to-file-itr-1-ay-2026-27
- Standard Deduction ₹75,000: What Salaried Need to Know → /standard-deduction-new-regime
Authoritative External References
- Income Tax Department — incometax.gov.in
- Finance Act 2025 and Budget 2026 documents on indiabudget.gov.in
- CBDT Circular on Section 115BAC
- Central Board of Direct Taxes press releases
Image Brief for Designer
Image 1: Vertical infographic showing both regimes side by side: new regime slabs in blue column, old regime slabs in orange column. Add ₹ symbols visually. 1080x1920 for Instagram Stories.
Image 2: Horizontal bar chart: tax liability at ₹8L, ₹12L, ₹15L, ₹20L, ₹25L, ₹30L — two bars per income level (new vs old). Use brand colors, 1600x900.
Image 3: Simple flowchart: "Compute gross income → Apply deductions → Apply slabs → Add cess → Apply rebate → Net tax". Each step as a rounded rectangle.
Schema Markup Specification
Article schema with explicit datePublished and dateModified. Use FAQPage schema for the FAQ section. Consider adding Table structured data for the slab tables (or use HTML table markup which Google already parses well). Include author, publisher, image, and wordCount properties.
Author Bio
Written by a Chartered Accountant with tax practice experience covering individual, partnership, and corporate returns across multiple assessment years. The author references statutes and CBDT circulars directly and avoids secondary sources where possible. Views are personal and not a substitute for case-specific advice.
Newsletter CTA Copy
| Never miss a tax update Slab changes, rebate tweaks, and CBDT clarifications — every change that affects your take-home pay, decoded in plain language. One email a month, no spam. Join readers who get it before their payroll teams do. |
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Compliance Disclaimer
| *This article is for educational purposes only and does not constitute tax advice for your specific situation. Tax provisions can be amended by subsequent Finance Acts, CBDT circulars, or judicial interpretation. Always verify current law with the Income Tax Department portal or a qualified Chartered Accountant before filing.* |
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Freshness Commitment
Last verified on 24 April 2026 against the Income Tax Department portal and Budget 2026 speech. This article will be updated within seven days of any notification affecting slabs, rebates, surcharge brackets, or cess rates, and reviewed comprehensively after every Union Budget.
Section 87A Rebate FY 2025-26: The ₹60,000 Rule, Marginal Relief, and the ₹12 Lakh Cliff Explained
Who should read this
If your total income is somewhere between ₹5 lakh and ₹13 lakh, Section 87A is probably the single most important provision for your tax liability. This guide explains exactly how the rebate works, when it applies, what happens if you cross the threshold by a small amount (marginal relief), and common errors I see people make. If you are a non-resident, certain parts apply differently — I will flag those clearly.
Introduction: the rebate that makes Indian tax feel less painful
In every Union Budget speech, one line usually gets applause louder than any other — the one about Section 87A. In 2024, it was raised from ₹25,000 to ₹50,000. In 2025, it jumped again to ₹60,000 and the income threshold expanded to ₹12 lakh. That single provision has done more to lighten the tax burden on middle-class India than any slab change in the last two decades.
But the rebate is also one of the most misunderstood provisions. Readers routinely confuse it with an exemption, miss the marginal relief mechanism, and assume it applies to every type of income. In this article, I break it down thoroughly: what it is, how it works, when it does not apply, and what happens at the dreaded "rebate cliff".
What exactly is a "rebate"?
A rebate is a reduction from your computed tax. It is applied after the tax has been calculated from the slab rates. This is different from an exemption (income not taxable at all) and different from a deduction (amount subtracted from gross income before computing tax).
| The three reductions — compared Exemption: Income is not taxable in the first place. Example: agricultural income, LTCG up to ₹1.25 lakh on equity. Deduction: Amount subtracted from gross income to arrive at taxable income. Example: Section 80C investments, Section 24(b) home loan interest. Rebate: Amount subtracted from the computed tax. Example: Section 87A rebate. |
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The order matters. First, you compute taxable income (gross income minus deductions minus exemptions). Second, you apply slab rates to arrive at the tax. Third, you subtract the rebate. Finally, you add cess (4%) on the net tax.
The current Section 87A limits for FY 2025-26
| Regime | Maximum rebate | Total income threshold | Applicable to |
|---|---|---|---|
| New regime | ₹60,000 | Up to ₹12,00,000 | Resident individuals only |
| Old regime | ₹12,500 | Up to ₹5,00,000 | Resident individuals only |
Three observations worth noting:
- The rebate is available only to resident individuals — not to non-residents, not to HUFs, not to companies or firms.
- The threshold is on "total income" — which is gross income minus all applicable deductions. Not gross income alone.
- The rebate equals the lesser of the cap (₹60,000 or ₹12,500) or the actual tax computed on total income. If your tax is only ₹25,000, only ₹25,000 is rebated — not the full ₹60,000.
| *“Think of the rebate as a waiver of your tax bill, not a cheque the government sends you. It can only cancel what you owe; it cannot refund what you did not.”* |
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How the rebate works: a step-by-step method
- Compute your gross total income (salary + other sources + capital gains + etc.).
- Subtract eligible deductions (standard deduction, 80C/80D under old regime, 80CCD(2) under either regime, and so on) to arrive at total income.
- Check the threshold: new regime requires total income ≤ ₹12 lakh; old regime requires total income ≤ ₹5 lakh.
- If below the threshold, compute the tax using slab rates.
- Apply Section 87A rebate: subtract the lesser of (tax computed) or (maximum rebate).
- If tax after rebate is zero or negative, show zero. If positive, add 4% cess on it.
- The result is your net tax liability.
Worked example 1: Anjali, ₹11,80,000 salary in Kochi (new regime)
Anjali is a software tester earning ₹11,80,000 gross salary. She has no deductions other than the standard deduction.
| Step | Amount (₹) |
|---|---|
| Gross salary | 11,80,000 |
| Less: Standard deduction | (75,000) |
| Total income | 11,05,000 |
| Is total income ≤ ₹12 lakh? (new regime) | Yes |
| Tax on ₹0 to ₹4L @ 0% | Nil |
| Tax on ₹4L to ₹8L @ 5% | 20,000 |
| Tax on ₹8L to ₹11.05L @ 10% | 30,500 |
| Total tax before rebate | 50,500 |
| Less: Section 87A rebate (lesser of ₹50,500 or ₹60,000) | (50,500) |
| Tax after rebate | Nil |
| Add: 4% cess on nil | Nil |
| Total tax liability | Zero |
Anjali pays zero tax on ₹11.80 lakh gross salary because her total income is under ₹12 lakh. The rebate wipes out the ₹50,500 tax completely. This is the practical effect of the "₹12 lakh tax-free" messaging you hear in the media.
Worked example 2: Rohan, ₹12,05,000 total income — the cliff (new regime)
Rohan earns a gross salary of ₹12,80,000. After the ₹75,000 standard deduction, his total income is ₹12,05,000 — just ₹5,000 over the threshold. Without marginal relief, he would suddenly pay a large amount of tax.
Without marginal relief (hypothetical)
| Step | Amount (₹) |
|---|---|
| Total income | 12,05,000 |
| Tax on ₹0 to ₹4L @ 0% | Nil |
| Tax on ₹4L to ₹8L @ 5% | 20,000 |
| Tax on ₹8L to ₹12L @ 10% | 40,000 |
| Tax on ₹12L to ₹12.05L @ 15% | 750 |
| Total tax before rebate | 60,750 |
| Section 87A rebate (not eligible — income > ₹12L) | Nil |
| Tax after rebate | 60,750 |
| The cliff effect Rohan earns ₹5,000 more than Anjali, but without marginal relief he would pay ₹60,750 more tax. This is economically absurd — an extra ₹5,000 of income creates a ₹60,750 tax hit. Section 87A marginal relief addresses exactly this. |
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With marginal relief (actual law)
Marginal relief says: the additional tax above ₹12 lakh cannot exceed the additional income above ₹12 lakh.
| Step | Amount (₹) |
|---|---|
| Income above ₹12 lakh | 5,000 |
| Tax on income at ₹12 lakh exactly (before rebate) | 60,000 |
| Rebate on tax at ₹12 lakh | 60,000 |
| Net tax at ₹12 lakh | Nil |
| Tax computed at ₹12,05,000 (no rebate) | 60,750 |
| Marginal relief = Tax computed − (Income excess) | 60,750 − 5,000 = 55,750 |
| Tax after marginal relief | 60,750 − 55,750 = 5,000 |
| Add: 4% cess | 200 |
| Total tax liability | 5,200 |
| What marginal relief achieves The incremental tax (₹5,000) equals the incremental income (₹5,000). This is fair. Without marginal relief, Rohan's effective marginal rate on that ₹5,000 would be over 1,200%. With relief, it is 100%. Marginal relief continues until the ordinary tax computation becomes lower than the income excess. Typically around ₹12,66,000-₹12,75,000 income, the ordinary new-regime tax takes over. |
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Worked example 3: Mr. Patel, ₹4,80,000 total income (old regime)
Mr. Patel is a salaried employee who has opted for the old regime. His gross salary is ₹5,30,000, and he claims ₹50,000 standard deduction. Total income: ₹4,80,000.
| Step | Amount (₹) |
|---|---|
| Gross salary | 5,30,000 |
| Less: Standard deduction | (50,000) |
| Total income | 4,80,000 |
| Is total income ≤ ₹5 lakh? (old regime) | Yes |
| Tax on ₹0 to ₹2.5L @ 0% | Nil |
| Tax on ₹2.5L to ₹4.8L @ 5% | 11,500 |
| Total tax before rebate | 11,500 |
| Less: Section 87A rebate (lesser of ₹11,500 or ₹12,500) | (11,500) |
| Tax after rebate | Nil |
| Add: 4% cess | Nil |
| Total tax liability | Zero |
Mr. Patel pays zero tax in the old regime because his total income is under ₹5 lakh and the rebate wipes out the small tax. But note: if he had earned even ₹1 more, crossing ₹5 lakh, the rebate would disappear and his tax would jump to around ₹13,000 plus cess. The old regime cliff is sharper and more unforgiving than the new regime — but marginal relief also applies here, capped at the excess income.
Worked example 4: Priya, an NRI with ₹11 lakh Indian income (no rebate)
Priya is a software engineer who moved to Singapore three years ago. She rents out her Bengaluru apartment (rent after standard 30% deduction: ₹4,50,000) and earns ₹6,50,000 bank interest in India. She qualifies as a non-resident for FY 2025-26.
| Step | Amount (₹) |
|---|---|
| Rental income (after 30% deduction) | 4,50,000 |
| Bank interest | 6,50,000 |
| Total income | 11,00,000 |
| Is total income ≤ ₹12 lakh? (new regime) | Yes |
| Tax on ₹0 to ₹4L @ 0% | Nil |
| Tax on ₹4L to ₹8L @ 5% | 20,000 |
| Tax on ₹8L to ₹11L @ 10% | 30,000 |
| Total tax before rebate | 50,000 |
| Section 87A rebate — Priya is NOT a resident individual | Nil |
| Tax after rebate | 50,000 |
| Add: 4% cess | 2,000 |
| Total tax liability | 52,000 |
| NRI tax cliff Priya pays ₹52,000 on ₹11 lakh income because the rebate does not apply to her. A resident earning the same ₹11 lakh in India would pay zero. If you are an NRI rewarded tax planning, factor this in. The Section 87A rebate is a resident-only benefit. |
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What income is excluded from Section 87A eligibility?
A crucial subtlety: not all tax is eligible for rebate. Tax on long-term capital gains chargeable under Section 112A — equity and equity mutual funds held over one year — is excluded. You cannot use the ₹60,000 rebate to offset LTCG tax.
| Example You have a salary of ₹10 lakh and equity LTCG of ₹3 lakh. Tax on salary portion after standard deduction: roughly ₹40,000. Tax on LTCG above ₹1.25 lakh exemption at 12.5%: roughly ₹21,875. Rebate can offset the ₹40,000 salary tax but NOT the ₹21,875 LTCG tax. So your net tax is ₹21,875 plus 4% cess. |
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Common mistakes I see every tax season
Mistake 1: Thinking the rebate is a refund
The rebate is applied during tax computation. It does not generate a refund on top of zero tax. If your TDS was zero and your computed tax is zero after rebate, the tax liability is simply zero. You cannot extract ₹60,000 cash from the government via the rebate.
Mistake 2: Computing rebate on gross income instead of total income
The ₹12 lakh threshold is on total income, which is after all deductions. A person with ₹12.5 lakh gross salary and ₹75,000 standard deduction has total income of ₹11.75 lakh — under the threshold, rebate applies. A person with ₹11.5 lakh gross salary but ₹75,000 standard deduction plus no other deductions also has total income of ₹10.75 lakh. Always look at total income.
Mistake 3: Not opting for the right regime
The ₹60,000 rebate requires the new regime. If you stay on the old regime by default, you only get ₹12,500 up to ₹5 lakh. Many salaried employees earning ₹8-12 lakh lose significant money by defaulting to old regime in their HR portal without thinking.
Mistake 4: Forgetting LTCG exclusion
Taxpayers see their total income below ₹12 lakh and assume zero tax — then get a demand notice because their equity LTCG was excluded from the rebate. If you sold mutual funds during the year, compute that separately.
Mistake 5: Assuming marginal relief means zero tax above ₹12 lakh
Marginal relief softens the cliff — it does not eliminate it. At ₹12.05 lakh income, you pay ₹5,000 tax plus cess (not zero). At ₹13 lakh income, you pay roughly ₹52,000. The relief only caps the jump; it does not restore the rebate.
A practical takeaway you can act on before your next salary credit
If your total income is estimated between ₹11 lakh and ₹13 lakh for FY 2025-26, play with the exact number. Can you time a year-end bonus for next FY? Can you increase your Section 80CCD(2) employer NPS contribution (14% of basic is tax-free under both regimes) to bring total income below ₹12 lakh? Even small planning can save the full ₹60,000 rebate.
And remember — the rebate is verified by the IT Department automatically when you file. But the regime choice is yours. Do not let ignorance of Section 87A push you into the wrong regime.
Key Takeaways
- Under the new regime, Section 87A rebate is up to ₹60,000 and applies to resident individuals with total income up to ₹12 lakh.
- Under the old regime, the rebate is capped at ₹12,500 and applies up to ₹5 lakh of total income.
- Marginal relief ensures that if you cross the threshold by a small margin, your tax increase is limited to the excess income.
- The rebate does not apply to long-term capital gains taxed under Section 112A (equity LTCG above ₹1.25 lakh).
- Non-residents are not eligible for Section 87A rebate under either regime.
- The rebate is computed automatically by the ITR e-filing utility, but you must select the correct regime for it to apply.
Frequently Asked Questions
What is the Section 87A rebate amount for FY 2025-26?
Under the new tax regime, the rebate is up to ₹60,000 for resident individuals with total income up to ₹12 lakh. Under the old regime, the rebate is up to ₹12,500 for resident individuals with total income up to ₹5 lakh. The rebate is subtracted from your computed tax, not from your income. If your tax is lower than the rebate limit, only the actual tax amount is rebated.
Is Section 87A rebate available under both old and new regimes?
Yes, but the limits are very different. New regime: maximum rebate of ₹60,000, applies up to ₹12 lakh income. Old regime: maximum rebate of ₹12,500, applies up to ₹5 lakh income. The new regime rebate is five times larger and kicks in at a much higher income threshold.
What is marginal relief under Section 87A?
Marginal relief protects taxpayers who cross the rebate threshold by a small amount. Without marginal relief, someone earning ₹12,01,000 would lose the full ₹60,000 rebate and pay sudden tax of about ₹60,150 — more than the ₹1,000 of extra income. With marginal relief, the extra tax cannot exceed the extra income. So on ₹12,01,000 income, the additional tax is capped at ₹1,000. The e-filing utility applies this automatically.
Does Section 87A apply to senior citizens?
Yes, under both regimes, as long as they are resident individuals. In the old regime, seniors already have a higher basic exemption (₹3 lakh for 60-80 and ₹5 lakh for above 80), which means their taxable income is lower to begin with. Super seniors with income up to ₹5 lakh pay zero tax in the old regime even without needing the rebate. In the new regime, seniors and non-seniors get the same ₹4 lakh exemption and the same ₹60,000 rebate up to ₹12 lakh.
Can NRIs claim Section 87A rebate?
No. Section 87A explicitly restricts the rebate to "resident individuals". Non-residents, including RNORs (resident but not ordinarily resident in some interpretations), do not get the rebate under either regime. This is why NRIs with Indian income of around ₹10-12 lakh often end up with materially higher tax liability than resident individuals on the same income.
Internal Links
These related articles will help you go deeper:
- Income Tax Slabs FY 2025-26: Complete Breakdown → /income-tax-slabs-fy-2025-26
- New vs Old Tax Regime FY 2025-26: Decision Guide → /new-vs-old-tax-regime-fy-2025-26-decision-guide
- Residential Status for Income Tax: Rules Explained → /residential-status-income-tax
- NRI Taxation in India: Complete Guide → /nri-taxation-india-complete-guide
- Capital Gains Taxation Post Budget 2024: Complete Guide → /capital-gains-tax-post-budget-2024
Authoritative External References
- Income Tax Act 1961, Section 87A
- Finance Act 2025 — amendments to Section 87A
- CBDT Circular on marginal relief provisions
- Income Tax Department e-filing portal and tax calculator
Image Brief for Designer
Image 1: Cliff visualization: horizontal axis is income from ₹10 lakh to ₹13 lakh; vertical axis is tax. Show the "cliff" at ₹12 lakh with and without marginal relief. 1600x900 PNG.
Image 2: Comparison chart: New regime rebate ₹60,000 (tall bar) vs Old regime ₹12,500 (short bar). Use brand colors. 1080x1080.
Image 3: Flowchart: "Are you resident? → Is income ≤ ₹12L new / ≤ ₹5L old? → Rebate applies. → Apply cess after rebate." Rounded rectangles, vertical layout.
Schema Markup Specification
Article schema with HowTo nesting for the **"**how to calculate rebate**"** steps. FAQPage schema for the FAQ section. Include wordCount, datePublished, dateModified. Consider MathSolver or similar if you render the marginal relief formula as a visual element.
Author Bio
Written by a practising Chartered Accountant who has filed individual returns across all regimes from the original old regime through the current dual-regime structure. The author references the Finance Act 2025 and CBDT circulars directly.
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Compliance Disclaimer
| *This article is educational content, not tax advice. The provisions of Section 87A may be amended by future Finance Acts or clarified by CBDT circulars. Always verify current applicability on the Income Tax Department portal or with a qualified Chartered Accountant before acting.* |
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Freshness Commitment
Last verified on 24 April 2026. The article is reviewed after every Union Budget and updated within seven days of any CBDT clarification or judicial ruling that affects Section 87A interpretation.