Section 87A Rebate Optimizer

How the 87A rebate works

Section 87A grants a tax rebate — not a deduction. Computed tax is set to zero if taxable income stays at or below ₹12 lakh under the new regime (FY 2025-26) or ₹5 lakh under the old regime. The rebate cap is ₹60,000 (new) and ₹12,500 (old). Marginal relief was introduced from FY 2023-24 to soften the cliff — without it, earning ₹1 above the threshold would create a tax of ₹60,000+ on that one rupee.

Worked example for FY 2025-26

A Mumbai engineer with taxable income of ₹12.10 lakh under the new regime would owe ₹61,500 in tax (slab calculation). Without marginal relief that would be punishing — ₹61,500 tax on ₹10,000 of excess income above ₹12L. Marginal relief caps the tax at the excess over ₹12L, i.e. ₹10,000. The taxpayer pays just ₹10,000 + cess instead of ₹61,500. The cliff fully unwinds around ₹12.75 lakh, after which normal slab tax kicks in.

When to use this

• Salaried with CTC near the ₹12L threshold — bonus planning matters
• Choosing between old (₹5L cliff) vs new (₹12L cliff) regime for FY 2025-26
• Freelancers under 44ADA whose presumed income is close to ₹12L
• Senior citizens with mostly pension + FD income

Pair this with the income tax calculator for full-regime comparison, and read income tax at ₹15 LPA — old vs new regime for the regime-choice math at higher incomes.