Quick Answer
Under the Income-tax Act, 2025 (30 of 2025), as amended by the Finance Act, 2026, a resident individual taxed under the default new regime gets a rebate of up to ₹60,000, which eliminates tax entirely when total income does not exceed ₹12,00,000. For a salaried individual, the ₹75,000 standard deduction pushes the effective nil-tax gross salary to ₹12,75,000. Marginal relief protects taxpayers just above ₹12 lakh. The old regime retains the ₹12,500 rebate for income up to ₹5 lakh. Non-residents and HUFs do not qualify.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
The ₹60,000 rebate is the single most powerful feature of the new tax regime for middle-income Indian taxpayers. It is the equivalent under the Income-tax Act, 2025 of what taxpayers of the 1961 Act knew as “Sec 87A rebate” — a statutory discount that reduces the tax liability of low- and middle-income resident individuals to zero. The 2025 version has been dramatically enlarged: what used to be a ₹25,000 rebate for income up to ₹7 lakh under the pre-2025 new regime is now a ₹60,000 rebate for income up to ₹12 lakh — a 140% increase in quantum and 71% increase in the ceiling.
This guide explains the rebate mechanics in detail: the legal basis, the arithmetic, the crucial marginal relief provision that protects taxpayers from “cliff” tax at income just above ₹12 lakh, how the ₹12.75 lakh effective threshold works for salaried employees, the contrast with the old regime rebate, and worked examples at ten different income levels. It is written for tax year 2026-27, the first tax year governed by the Income-tax Act, 2025.
Definition — Rebate: A rebate is a statutory discount applied against the tax computed on total income, reducing the final liability. Unlike a deduction (which reduces income before tax), a rebate directly reduces the tax itself. Under the Income-tax Act, 2025, the principal rebate is for resident individuals and is calculated as the lower of the tax on income up to ₹12,00,000 or ₹60,000 (new regime) / the tax on income up to ₹5,00,000 or ₹12,500 (old regime).
A resident individual in the new regime computes tax on total income at slab rates. If total income is at or below ₹12,00,000, the full slab tax (which at exactly ₹12 lakh is ₹60,000 — being ₹20,000 at 5% on the ₹4–8 lakh tranche plus ₹40,000 at 10% on the ₹8–12 lakh tranche) is extinguished by a rebate of up to ₹60,000, resulting in zero tax. For salaried taxpayers, the ₹75,000 standard deduction is applied to gross salary first, so a gross salary of ₹12,75,000 becomes taxable income of ₹12,00,000 and therefore pays zero tax. Income even slightly above ₹12 lakh would create a “cliff” where every rupee of extra income triggers ₹60,000-plus of additional tax — so the Act includes a marginal relief provision that restricts tax payable to the excess over ₹12 lakh. Marginal relief applies up to approximately ₹12,70,000, after which the normal slab calculation yields a tax lower than the marginal-relief ceiling and the cushion is no longer needed.
The Income-tax Act, 2025 received Presidential assent on 21 August 2025 and commences unconditionally on 1 April 2026. Chapter IX of the Act (“Rebates and Reliefs”, Sec 216–220) contains the rebate provisions for resident individuals. The substantive rebate quantum and the ₹12 lakh ceiling are declared through the Finance Act, 2026, which amends the rate-of-tax and rebate provisions of the principal Act. In combined effect:
The 2025 Act rebate is the clear lineal successor to Sec 87A of the repealed Income-tax Act, 1961. The policy intent — a zero-tax safety net for resident individuals below a stated income ceiling — is identical; the quantum is much larger.
To understand why the ₹60,000 rebate precisely extinguishes the tax at ₹12 lakh, walk through the slab calculation on exactly ₹12,00,000 of total income:
| Income tranche | Rate | Tax on tranche |
|---|---|---|
| ₹0 — ₹4,00,000 | Nil | ₹0 |
| ₹4,00,001 — ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 — ₹12,00,000 | 10% | ₹40,000 |
| Total slab tax on ₹12 lakh | — | ₹60,000 |
| Less: rebate | — | (₹60,000) |
| Net tax | — | ₹0 |
The rebate ceiling of ₹60,000 was deliberately calibrated to match the slab tax on ₹12 lakh. Any taxpayer with total income between ₹4 lakh (where slab tax first becomes positive) and ₹12 lakh sees the rebate wipe out their liability entirely. Because the slab tax at ₹8 lakh is only ₹20,000, that taxpayer’s rebate is capped at ₹20,000 (the rebate is the lower of the actual tax or ₹60,000).
The standard deduction is subtracted from gross salary under the head “salaries” before the slab calculation begins. Under the new regime, the standard deduction for salaried employees and pensioners is ₹75,000 — up from ₹50,000 under the repealed 1961 Act regime. Therefore:
The ₹12.75 lakh figure is what makes the new-regime rebate so politically effective: for a salaried person, it is the highest nominal salary at which the income tax liability is exactly zero. The same logic extends to pensioners receiving a monthly pension — they too get the ₹75,000 standard deduction and therefore the same ₹12.75 lakh nil-tax ceiling.
Family pensioners (dependants receiving pension under Sec 57 equivalent) get a smaller standard deduction of ₹25,000 under the new regime, so their equivalent nil-tax ceiling is ₹12,25,000 of family pension income.
Without marginal relief, the ₹12 lakh ceiling would create a “cliff”: a taxpayer earning ₹12,00,000 pays zero tax, while a taxpayer earning ₹12,00,001 would pay tax on the entire ₹12 lakh without any rebate — approximately ₹60,000 of tax triggered by a single extra rupee. To avoid this absurdity, the 2025 Act provides marginal relief: where total income exceeds ₹12 lakh, the tax payable shall not exceed the amount by which income exceeds ₹12 lakh.
Walk through the arithmetic:
| Total income | Full slab tax | Excess over ₹12 lakh | Tax with marginal relief |
|---|---|---|---|
| ₹12,00,000 | ₹60,000 (rebated) | ₹0 | ₹0 |
| ₹12,10,000 | ₹61,500 | ₹10,000 | ₹10,000 |
| ₹12,30,000 | ₹64,500 | ₹30,000 | ₹30,000 |
| ₹12,50,000 | ₹67,500 | ₹50,000 | ₹50,000 |
| ₹12,70,000 | ₹70,500 | ₹70,000 | ₹70,000 |
| ₹12,75,000 | ₹71,250 | ₹75,000 | ₹71,250 (marginal relief no longer binding) |
At around ₹12,70,000 the full slab tax (~₹70,500) starts to track closely with the excess over ₹12 lakh, and shortly thereafter the normal slab calculation yields a figure below the marginal relief cap. Marginal relief therefore tapers out smoothly; there is no further cliff. Note the steep effective marginal rate inside the relief zone: between ₹12 lakh and ₹12.70 lakh, every extra rupee of income triggers roughly one rupee of extra tax — an effective 100% marginal rate. This is by design, and it is still better than the alternative cliff.
Resident individuals who opt out of the new regime via Form 10-IEA retain the old-regime rebate as it existed under the repealed 1961 Act: a rebate of the lower of the tax payable or ₹12,500, available only where total income does not exceed ₹5,00,000. Because the old-regime slab tax on exactly ₹5 lakh is ₹12,500 (5% on ₹2.5 lakh), the rebate precisely extinguishes the tax — just like in the new regime, but at a much lower income level. For a detailed comparison of both regimes, see our slabs guide.
Eligible: Resident individuals only — whether salaried, self-employed professional, small business owner, pensioner, freelancer, farmer or student with taxable income, provided they are residents of India for income-tax purposes.
Not eligible:
The policy rationale is that the rebate is a targeted transfer to resident individual taxpayers at the bottom and middle of the income distribution. Non-residents are assumed to be tax residents elsewhere, and non-individual entities are not the intended beneficiaries of distributional relief.
The rebate applies to tax computed at slab rates, not to tax computed at special rates. This is critical for taxpayers who have a mix of salary and capital gains or other special-rate income. The following incomes are taxed at special rates and the tax on them is not eligible for the rebate:
A taxpayer with ₹9 lakh salary (under ₹12 lakh threshold) and ₹4 lakh LTCG from listed shares will pay zero tax on the salary via the rebate, but LTCG tax of 12.5% on ₹2.75 lakh (after the ₹1.25 lakh annual exemption) = ₹34,375 plus cess. For the full capital gains regime, see our capital gains guide.
| Feature | 1961 Act Sec 87A (pre-2025 new regime) | 2025 Act new regime |
|---|---|---|
| Income ceiling | ₹7,00,000 | ₹12,00,000 |
| Maximum rebate | ₹25,000 | ₹60,000 |
| Salaried effective threshold | ₹7,50,000 (with ₹50,000 SD) | ₹12,75,000 (with ₹75,000 SD) |
| Marginal relief | Yes | Yes — retained |
| Old-regime version | ₹12,500 (₹5 lakh ceiling) | ₹12,500 (₹5 lakh ceiling) — unchanged |
For related topics, see our guides on tax year 2026-27 slabs, standard deduction, surcharge and cess, deductions, and Form 10-IEA and regime choice mechanics.
CA V. Viswanathan: The ₹60,000 rebate is the single most consequential tax change of the last decade for salaried middle-class India, and in my practice I have watched it rewrite the financial psychology of clients in the ₹10–13 lakh earning band. Three practical observations. First, do not let your employer confuse gross CTC with taxable salary when projecting TDS — I see at least a dozen cases every assessment season where the employer has deducted TDS on a ₹12.75 lakh CTC as if it were ₹12.75 lakh taxable, resulting in unnecessary refund claims. The payroll system must be told to apply the ₹75,000 standard deduction before slab-plus-rebate computation. Second, the marginal relief zone (₹12.00–12.70 lakh taxable) is a tax planner’s purgatory — I routinely advise clients approaching that zone to defer bonus payouts or advance claim reimbursements into the next tax year. Third, and most importantly, the rebate does not cover LTCG, STCG on listed equity, lottery winnings or VDA (crypto) gains. A client who thought their entire ₹11 lakh income was tax-free was shocked to learn that their ₹3 lakh of crypto profit carried a flat 30% tax regardless. Plan capital gains harvests alongside slab income, not separately. And finally, remember: the Act is new (assented 21 August 2025, commencing 1 April 2026), and software utilities are still being updated to handle marginal relief automatically in all cases. Re-check your return calculation against the statutory formula before filing.
What is the Section 87A equivalent rebate under the 2025 Act?
₹60,000 rebate for resident individuals in the new regime with total income up to ₹12 lakh. Old regime keeps the ₹12,500 rebate with a ₹5 lakh ceiling.
At what salary does a salaried individual pay zero tax?
₹12.75 lakh gross salary — after the ₹75,000 standard deduction, taxable income is ₹12 lakh and the rebate wipes out the ₹60,000 slab tax.
How does marginal relief work?
Where income exceeds ₹12 lakh, tax payable cannot exceed the excess over ₹12 lakh. This prevents a cliff effect just above the rebate ceiling and tapers out near ₹12.70 lakh.
Are non-residents eligible?
No. The rebate is restricted to resident individuals only. Non-residents pay tax from the first rupee above the exemption without any rebate shelter.
What is the old regime rebate?
₹12,500 for resident individuals with total income up to ₹5 lakh. Unchanged from the pre-2025 position.
Does the rebate apply to capital gains?
No. The rebate covers only slab-rate tax. LTCG (12.5%), STCG on listed equity (20%), lottery (30%) and VDA (30%) tax is not rebated.
Do HUFs qualify?
No. Only resident individuals. HUFs, AOPs, BOIs, firms, LLPs and companies do not qualify under either regime.
How is the rebate claimed?
Automatically at return filing. The ITR utility computes slab tax, identifies eligibility, and applies the rebate before cess. No form required.
How does standard deduction interact with rebate?
Standard deduction is subtracted from gross salary first; rebate is applied to the tax on the resulting taxable income. The combination yields ₹12.75 lakh effective nil-tax gross salary.
What happens if I have business income above ₹12 lakh?
Full slab tax, with marginal relief if between ₹12 lakh and ~₹12.70 lakh. Above ~₹12.70 lakh, normal slab calculation applies.
What is the effective tax rate in the marginal relief zone?
Approximately 100% — every rupee of extra income between ₹12 lakh and ₹12.70 lakh is absorbed by extra tax until marginal relief tapers out.
Does the rebate apply to surcharge?
Moot — surcharge starts at ₹50 lakh of income, well above the ₹12 lakh rebate ceiling. The two cannot coexist for the same taxpayer.
Do Agniveers get the rebate?
Yes, if they are resident individuals. Agniveer Corpus Fund contributions are also separately deductible in the new regime.
How does the 2025 Act rebate compare with the 1961 Act?
The 1961 Act Sec 87A gave ₹25,000 rebate for income up to ₹7 lakh under the new regime. The 2025 Act lifts it to ₹60,000 and ₹12 lakh — a 140% rebate increase and 71% ceiling increase.
Is marginal relief automatic?
Yes — statutorily embedded. ITR utilities compute both the full slab tax and the marginal relief cap, and use the lower figure.
For a personalised rebate and regime calculation, contact Virtual Auditor or call +91 99622 60333.