Section 87A of the Indian Income Tax Act provides critical tax relief to middle-income salaried employees, effectively bringing tax liability to Zero (₹0) if taxable income remains within specified statutory thresholds.
Under the latest **Budget FY 2026-27 tax rules**, Section 87A works differently across the Old and New Tax Regimes.
1. Section 87A Rebate Threshold Comparison (FY 2026-27)
| Tax Parameter | New Tax Regime (FY 2026-27) | Old Tax Regime (FY 2026-27) |
|---|---|---|
| Max Net Taxable Income Ceiling | ₹7,00,000 | ₹5,00,000 |
| Max Statutory Rebate Amount | ₹25,000 | ₹12,500 |
| Standard Deduction Available | ₹75,000 | ₹50,000 |
| MAX ZERO-TAX GROSS SALARY CEILING | ₹7,75,000 CTC | ₹5,50,000 CTC |
2. Mathematical Rebate Calculation Example
Consider a salaried software developer earning an annual package of ₹7,50,000 under the New Tax Regime:
- Gross Salary: ₹7,50,000
- Minus Standard Deduction: -₹75,000
- Net Taxable Income: ₹6,75,000
- Calculated Tax before Rebate: ₹22,500
- Section 87A Tax Rebate Claimed: -₹22,500
- FINAL NET INCOME TAX PAYABLE: ₹0 (Zero Tax)
3. Frequently Asked Questions
What is the maximum Section 87A rebate limit for FY 2026-27?
Under the New Tax Regime for FY 2026-27, the maximum Section 87A tax rebate is ₹25,000 for taxable income up to ₹7,00,000. Under the Old Tax Regime, the rebate limit is ₹12,500 for taxable income up to ₹5,00,000.
Is Section 87A rebate applicable on CTC up to ₹7.75 LPA?
Yes! Salaried employees with a CTC of ₹7.75 LPA under the New Tax Regime get a ₹75,000 Standard Deduction. This brings net taxable income down to ₹7.0 LPA, qualifying for 100% Section 87A tax rebate (Zero Income Tax).
Can non-resident Indians (NRIs) claim Section 87A rebate?
No. Section 87A income tax rebate is strictly available only to Resident Individual taxpayers in India.
Does Section 87A apply to short-term capital gains (STCG)?
Section 87A rebate is available against normal income tax liabilities and STCG under Section 111A, but cannot be adjusted against special rate tax on Long-Term Capital Gains (LTCG) under Section 112A.
How to claim Section 87A rebate when filing ITR?
When filing your annual ITR-1 or ITR-2 return on the income tax portal, the software automatically calculates and applies your eligible Section 87A rebate based on your computed taxable income.