What is Section 87A rebate in FY 2025-26?

Section 87A gives a rebate of up to ₹60,000 under the New Regime if taxable income is ≤ ₹12 lakh, making final tax zero. Under Old Regime the rebate is ₹12,500 for income ≤ ₹5 lakh.

Who is eligible for Section 87A?

Individual resident taxpayers whose taxable income does not exceed ₹12 lakh (New Regime) or ₹5 lakh (Old Regime). HUFs and companies are not eligible. Does not apply to special-rate incomes like capital gains at flat rates.

Is income up to ₹12 lakh completely tax free under New Regime?

For salaried individuals yes — effectively. With the ₹75,000 standard deduction, a gross salary of ₹12.75 lakh gives exactly ₹12 lakh taxable income, which attracts zero tax after the 87A rebate.

What happens if income crosses ₹12 lakh by a small amount?

You lose the full 87A rebate, but marginal relief applies. Your tax is capped at the income above ₹12 lakh. So at ₹12.5 lakh taxable income, tax is ₹50,000 + 4% cess, not the full ₹86,528 that would normally apply.

Does Section 87A apply to capital gains?

No. Section 87A rebate does not apply to special-rate income like STCG under Section 111A or LTCG under Section 112A. Even if total income is below ₹12 lakh, tax on such gains must be paid separately.

FY 2025-26 · AY 2026-27

Marginal Relief in Income Tax — ₹12L to ₹12.75L Zone Explained

Earn just above ₹12 lakh taxable income? You don't lose the full 87A rebate in one go. Marginal relief protects you — here's exactly how much and where it stops.

⚠ Applies: ₹12L–₹12.75L Taxable

Full Tax Above ₹12.75L

The Problem Marginal Relief Solves

Without marginal relief, crossing ₹12 lakh taxable income by ₹1 would mean paying ₹83,200 in tax instead of ₹0. That's irrational — ₹83,200 tax on ₹1 extra income. Marginal relief prevents this absurdity by capping your tax at the actual income above ₹12 lakh.

Step-by-Step: Marginal Relief at ₹12.5L Taxable Income

Step	Amount
Taxable Income	₹12,50,000
Normal tax on ₹12.5L (slab-wise)	₹83,200 (₹0+₹20K+₹40K+₹23,200)
87A rebate available?	No — income exceeds ₹12L
Normal tax + 4% cess (no relief)	₹86,528
Income above ₹12L threshold	₹12,50,000 − ₹12,00,000 = ₹50,000
Marginal relief: tax reduced to	₹50,000 (the excess only)
Cess (4% on ₹50,000)	₹2,000
Final Tax With Marginal Relief	₹52,000
Tax saved by marginal relief	₹34,528

Marginal Relief Zone — Complete Table

Taxable Income	Normal Tax + Cess	With Marginal Relief	You Save
₹12,00,000	₹0 (87A rebate)	₹0	—
₹12,10,000	₹86,528	₹10,400	₹76,128
₹12,25,000	₹86,528	₹26,000	₹60,528
₹12,50,000	₹86,528	₹52,000	₹34,528
₹12,75,000	₹86,528	₹86,528	₹0 — no relief left
₹13,00,000	₹1,04,000	₹1,04,000	No relief

₹12L Taxable or Below

₹0

Full 87A rebate applies. Zero tax payable.

✓ BEST OUTCOME

₹12L–₹12.75L Taxable

₹0–₹87K

Marginal relief: tax = excess over ₹12L + 4% cess.

Key Insights

✓ Best Strategy: Stay Below ₹12L Taxable

Marginal relief reduces tax but doesn't eliminate it. The cleanest outcome is keeping taxable income at or below ₹12 lakh. In the New Regime, employer NPS contribution (80CCD(2)) is still deductible. If your employer contributes 10% of basic to NPS, that reduces taxable income — and can be the difference between ₹0 tax and ₹50,000+.

⚠ Gross Salary vs Taxable Income — Don't Confuse

Marginal relief is based on taxable income, not gross salary. A gross salary of ₹12.75L with the ₹75,000 standard deduction gives ₹12L taxable — zero tax. The danger zone of ₹12L–₹12.75L taxable roughly means gross salary of ₹12.75L–₹13.5L. Know which number you're working with.

💡 Bonus Timing Can Save Lakhs

If your year-end bonus could push taxable income just above ₹12L, discuss timing with your employer. A bonus declared in April (next FY) keeps this year's income below the threshold. This is legitimate tax planning — and at the ₹12L cliff, the stakes are ₹50,000–₹83,000.

Check If You're in the Marginal Relief Zone

Enter your salary and deductions to see your exact taxable income and whether marginal relief applies.

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Frequently Asked Questions

What is marginal relief in income tax India?

Marginal relief ensures your tax cannot exceed the extra income you earn above the 87A rebate threshold. Under New Regime FY 2025-26, if taxable income is between ₹12L and ₹12.75L, your tax is capped at (taxable income − ₹12L) + 4% cess — not the full ₹86,528 that would normally apply.

How much tax on ₹12.5 lakh taxable income?

Without marginal relief: ₹86,528. With marginal relief: ₹52,000 (₹50,000 excess + 4% cess). Marginal relief saves you ₹34,528. Beyond ₹12.75L taxable income, full slab-rate tax applies with no relief of any kind.

What income range benefits from marginal relief in FY 2025-26?

Taxable income between ₹12,00,001 and ₹12,75,000 under the New Regime. This corresponds to gross salary of approximately ₹12.75L to ₹13.5L (before standard deduction). Below ₹12L: zero tax. Above ₹12.75L: full slab-rate tax with no protection.

How do I calculate marginal relief?

Tax with marginal relief = (Taxable income − ₹12,00,000) × 1.04. For example, at ₹12.3L taxable: (₹12,30,000 − ₹12,00,000) × 1.04 = ₹30,000 × 1.04 = ₹31,200. This is always lower than normal tax of ₹86,528 in this zone.

Should I try to keep income below ₹12 lakh to avoid tax?

If achievable without sacrificing real income, yes. Tools: employer NPS contribution (80CCD(2)), bonus timing, checking all available New Regime deductions. Never reduce actual income purely for tax — the savings only make sense if you're close to the threshold anyway.

Explore Related Tax Guides

Marginal relief is one piece of the picture — understand the full system with these guides: