The Magic of Section 87A
The biggest selling point of the new tax regime for Assessment Year 2026-27 is the enhanced rebate under Section 87A.
Many taxpayers are confused by the tax slabs. They see that income between ₹3 lakhs and ₹7 lakhs is taxed at 5%, and assume they have to pay tax. But thanks to the rebate, you pay zero tax if your total taxable income is up to ₹12 lakhs.
Here is how the math actually works.
How the Rebate is Calculated
Let's assume your Gross Salary is ₹12,75,000 and you have no other income. 1. Standard Deduction: Subtract ₹75,000. 2. Taxable Income: ₹12,00,000.
Now, let's calculate the tax according to the new regime slabs: - ₹0 to ₹3L: Nil - ₹3L to ₹7L (5% of ₹4L): ₹20,000 - ₹7L to ₹10L (10% of ₹3L): ₹30,000 - ₹10L to ₹12L (15% of ₹2L): ₹30,000 - Total Calculated Tax: ₹80,000.
This is where Section 87A steps in. The rule says: If taxable income is ≤ ₹12,00,000, provide a rebate equal to the tax calculated, up to a maximum of ₹80,000.
Since your taxable income is exactly ₹12 lakhs, the government gives you a rebate of ₹80,000. Final Tax Payable: ₹0.
Under the new regime for AY 2026-27, the Section 87A rebate wipes out tax for taxable income up to Rs 12,00,000, versus only Rs 5,00,000 under the old regime. Source: Income Tax Dept, Section 87A rebate, AY 2026-27.
| Regime | 87A rebate covers income up to | Standard deduction |
|---|---|---|
| New regime | Rs 12,00,000 | Rs 75,000 |
| Old regime | Rs 5,00,000 | Rs 50,000 |
The Danger of "Other Income"
The ₹12 lakh limit applies to your Total Taxable Income, not just your salary.
If your salary is ₹11,90,000, you might think you are safe. But if your AIS shows ₹20,000 in bank FD interest, your total income becomes ₹12,10,000. You cross the threshold, lose the rebate, and suddenly owe thousands of rupees in tax.
This is why checking your AIS before filing is critical.
Marginal Relief
What if your income is ₹12,10,000? Do you suddenly have to pay ₹81,500 in tax just because you earned ₹10,000 extra?
No. The government provides "Marginal Relief." The rule ensures that the tax payable cannot exceed the income earned above the ₹12 lakh threshold. In this case, your tax would be capped at ₹10,000.
What you should do
- Add all income, not just salary, before checking the Rs 12,00,000 line
- Pull your AIS so FD interest or dividends do not silently push you over
- If you are just above Rs 12,00,000, rely on marginal relief rather than panicking
- Subtract the Rs 75,000 standard deduction first; rebate is on taxable income
Common mistake
Forgetting FD interest in your AIS. A salary of Rs 11,90,000 looks safe, but Rs 20,000 of bank interest tips total income to Rs 12,10,000 and forfeits the full rebate.
Let the Software Handle the Math
Calculating rebates and marginal relief manually is prone to errors.
When you use LastMinute ITR, our tax engine automatically calculates your exact liability. We factor in your salary, standard deduction, and any other income you declare, applying the 87A rebate and marginal relief perfectly.
Check your tax liability instantly by uploading your Form 16.