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. Budget FY 2026-27 Section 87A Rebate Threshold Hike
The Section 87A tax rebate under the New Tax Regime allows individuals earning up to ₹12 Lakhs gross income to pay zero net income tax, offering massive tax relief to salaried employees across India.
4. Deep-Dive Salary Component Analysis: Section 87A Tax Rebate Guide FY 2026-2
When evaluating Cost to Company (CTC) packages in India, understanding how gross earnings translate into net monthly bank credits is essential for financial planning and career negotiations. CTC includes direct monthly cash components, employer retirals (EPF and Gratuity), annual variable bonuses, and indirect benefits such as group health insurance.
| Salary Component | Monthly Amount (INR) | Annual Allocation (INR) | Taxability & Deduction Status (FY 2026-27) |
|---|---|---|---|
| Basic Salary | ₹33,333 | ₹400,000 | Fully taxable; base for EPF and Gratuity calculations |
| House Rent Allowance (HRA) | ₹13,333 | ₹160,000 | Exempt under Sec 10(13A) in Old Regime; taxable in New Regime |
| Special / Flexi Allowance | ₹36,667 | ₹440,000 | Fully taxable balancing component |
| Employer EPF Contribution | ₹4,000 | ₹48,000 | Retirement corpus benefit; excluded from monthly cash pay |
| Professional Tax (PT) | ₹200 | ₹2,400 | State government statutory deduction |
| Estimated Income Tax TDS | ₹0 | ₹0 | Computed under FY 2026-27 New Tax Regime after ₹75k Standard Deduction |
| Net Monthly In-Hand Salary | ₹79,133 | ₹949,600 | Actual Net Bank Credit Deposited Monthly |
5. Income Tax TDS & Budget FY 2026-27 Rebate Framework
Under the revised New Tax Regime introduced in Budget FY 2026-27, salaried individuals receive an enhanced Standard Deduction of ₹75,000. Furthermore, the Section 87A tax rebate threshold exempts all taxpayers with gross taxable income up to ₹12,000,000 (₹12 Lakhs) from paying any income tax.
For packages above ₹12 Lakhs, income tax slabs apply progressively: 0-4 Lakhs (Nil), 4-8 Lakhs (5%), 8-12 Lakhs (10%), 12-16 Lakhs (15%), 16-20 Lakhs (20%), 20-24 Lakhs (25%), and above 24 Lakhs (30%).
6. Strategic CTC Negotiation Tips for Software Professionals
Maximize Fixed Base Cash: Negotiate for a higher fixed cash base rather than non-guaranteed variable pay pools or joining bonuses with multi-year clawback clauses.
Opt for Corporate NPS under Section 80CCD(2): Redirecting up to 10% of basic salary into Corporate NPS managed by your employer reduces taxable income directly under both Old and New Tax Regimes.
Verify Employer EPF Inclusion: Ensure whether employer EPF (12% of basic) is included inside the headline CTC or provided as an additional benefit.