IT Act 1961 → 2025 / Salaried employees / Rebate under section 156
Rebate under section 156 (old 87A) explained
Why income up to ₹12 lakh — or ₹12.75 lakh of salary — pays no tax under the new regime, and how marginal relief works just above it.
Tax year 2026-27 · Income-tax Act, 2025 as amended by Finance Act 2026 · reviewed 5 November 2026
Who gets it
- Only resident individuals. Non-residents, HUFs and firms do not get the rebate.
- Old regime (156(1)): 100% of tax, up to ₹12,500, if total income does not exceed ₹5 lakh.
- New regime (156(2)(a)): 100% of tax, up to ₹60,000, if total income does not exceed ₹12 lakh.
Why salary up to ₹12.75 lakh is tax-free
A salaried employee under the new regime first gets the ₹75,000 standard deduction (section 19). Salary of ₹12,75,000 becomes total income of ₹12,00,000. Slab tax on ₹12 lakh is ₹60,000 — exactly the maximum rebate — so the tax payable is nil.
Marginal relief just above ₹12 lakh
Section 156(2)(b): if total income exceeds ₹12 lakh, the tax payable cannot be more than the income above ₹12 lakh. The relief disappears at about ₹12,70,588.
| Total income | Slab tax | Income above ₹12 lakh | Tax payable (before cess) |
|---|---|---|---|
| ₹12,00,000 | ₹60,000 | — | Nil |
| ₹12,10,000 | ₹61,500 | ₹10,000 | ₹10,000 |
| ₹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 (no relief) |
What the rebate does not cover
- Section 156(3): the new-regime rebate cannot exceed tax at the section 202 slab rates. Tax on special-rate income — STCG on listed shares (20%), LTCG (12.5%), lottery winnings (30%) — is payable even if total income is below ₹12 lakh.
- Cess (4%) is computed on tax after the rebate, so nil tax means nil cess.
Frequently asked
Is income up to ₹12 lakh tax-free in 2026-27?
Under the new regime, yes for a resident individual whose income is taxed at slab rates: the section 156 rebate of up to ₹60,000 wipes out the tax. Special-rate income such as capital gains is not covered.
What is section 87A called in the new Income Tax Act?
Section 156 of the Income-tax Act, 2025.