Section 156 Replaces Section 87A: ₹60,000 Income Tax Rebate Explained
Summary: Section 156 of the Income-tax Act, 2025 replaces the familiar rebate provision under Section 87A of the Income-tax Act, 1961. The principal benefits remain substantially unchanged. Eligible resident individuals opting for the new tax regime under Section 202 can claim a rebate of up to ₹60,000 where total income does not exceed ₹12 lakh, subject to the applicable statutory conditions. Under the old tax regime, the rebate continues at a maximum of ₹12,500 for eligible resident individuals whose total income does not exceed ₹5 lakh. The new law also preserves marginal relief for eligible taxpayers whose income marginally exceeds ₹12 lakh. However, the rebate under the new regime is restricted to tax calculated at the normal slab rates and cannot be used to eliminate tax payable on income chargeable at special rates, such as specified capital gains, lottery winnings or virtual digital asset income. This article compares Sections 87A and 156, explains the new-regime tax slabs, illustrates rebate calculations for incomes of ₹10 lakh, ₹12 lakh and ₹12.50 lakh, and examines the treatment of long-term capital gains. It also explains why taxpayers should distinguish normal-rate income from special-rate income before computing the rebate.
Introduction
If you have filed income tax returns, you know Section 87A. It is the rule that cuts your tax down to nil when your income is low. The new Income-tax Act, 2025 replaces the 1961 Act, so where did 87A go?
Short answer: It is now Section 156. The number has changed, but the relief is almost the same.
Section 156 in Brief
- Section 87A is now Section 156.
- New regime (Section 202): A rebate of up to ₹60,000 if total income is up to ₹12 lakh.
- Old regime: A rebate of up to ₹12,500 if total income is up to ₹5 lakh.
- Marginal relief (help for incomes just above ₹12 lakh) continues under the new regime.
- “Assessment Year” is now called “Tax Year”.
- The new regime section, 115BAC, is now Section 202.
Important Terms
Two terms used below:
- Rebate: A discount on your tax bill.
- Marginal relief: A cap that stops your tax from jumping by more than your extra income when you cross ₹12 lakh.
All figures below leave out 4% cess (and surcharge, where it applies) unless stated.
Old Section vs New Section
| Point | Section 87A (1961 Act) | Section 156 (2025 Act) |
|---|---|---|
| Who can claim | Resident individual | Resident individual |
| Old regime: income limit | ₹5 lakh | ₹5 lakh |
| Old regime: maximum rebate | ₹12,500 | ₹12,500 |
| New regime: income limit | ₹12 lakh | ₹12 lakh |
| New regime: maximum rebate | ₹60,000 | ₹60,000, and never more than the tax on your income at Section 202(1) rates |
| Marginal relief | New regime only | New regime only |
| New regime section | Section 115BAC | Section 202 |
| Year name | Assessment Year | Tax Year |
Example 1: Income of ₹10 Lakh and ₹12 Lakh
Mr. A (total income ₹10 lakh) and Mr. B (total income ₹12 lakh) are resident individuals in the new regime. All their income is taxed at normal slab rates under Section 202(1).
| Income slab | Mr. A (₹10 lakh) | Mr. B (₹12 lakh) |
|---|---|---|
| ₹0 – ₹4 lakh | Nil | Nil |
| ₹4 – ₹8 lakh @ 5% | ₹20,000 | ₹20,000 |
| ₹8 lakh onwards @ 10% | ₹20,000 | ₹40,000 |
| Tax before rebate | ₹40,000 | ₹60,000 |
| Less: rebate under Section 156 | ₹40,000 | ₹60,000 |
| Tax to pay | Nil | Nil |
Both individuals pay no income tax under the new regime. Still, always check what kind of income you have (see the capital gains section below).
Example 2: Income of ₹12.50 Lakh
Mr. C has a total income of ₹12.50 lakh, taxed under Section 202(1).
| Income slab | Tax |
|---|---|
| ₹0 – ₹4 lakh | Nil |
| ₹4 – ₹8 lakh @ 5% | ₹20,000 |
| ₹8 – ₹12 lakh @ 10% | ₹40,000 |
| ₹12 – ₹12.50 lakh @ 15% | ₹7,500 |
| Tax before marginal relief | ₹67,500 |
His income is ₹50,000 above ₹12 lakh. But his tax (₹67,500) is more than that extra ₹50,000.
So Section 156(2) gives him marginal relief:
- Tax before relief: ₹67,500
- Extra income above ₹12 lakh: ₹50,000
- Marginal relief: ₹67,500 − ₹50,000 = ₹17,500
Tax to pay = ₹50,000 (plus 4% cess).
Where relief ends: With these slabs, marginal relief helps until income reaches about ₹12.7 lakh. After that, the normal tax is lower than the extra income, so no relief is needed.
It applies only when your income is taxed under Section 202(1) and the section’s conditions are met.
What About Capital Gains?
Some income is taxed at special rates, not normal slab rates. A common example is long-term capital gains (LTCG) on listed shares and equity mutual funds, covered by Section 198 (earlier Section 112A), at 12.5% on gains above ₹1.25 lakh a year.
Under Section 198(7), the Section 156 rebate applies only after removing the tax on those gains. Section 156(3) also caps the rebate at the tax on your normal income.
Example: Rebate on Normal Income and LTCG
Riya is a resident individual in the new regime. She has ₹8 lakh of normal income and ₹4 lakh of taxable LTCG under Section 198 (after the ₹1.25 lakh exemption). Her total income is ₹12 lakh.
| Step | Wrong way | Right way |
|---|---|---|
| Tax on ₹8 lakh normal income | ₹20,000 | ₹20,000 |
| Tax on ₹4 lakh LTCG @ 12.5% | ₹50,000 | ₹50,000 |
| Total tax before rebate | ₹70,000 | ₹70,000 |
| Rebate | ₹60,000 (on the whole tax) | ₹20,000 (only on the normal-income tax) |
| Tax to pay (before cess) | ₹10,000 | ₹50,000 |
The wrong way saves ₹40,000 that she does not actually get. After 4% cess, Riya’s correct bill is ₹52,000.
The rebate does not cancel the tax on specified LTCG under Section 198.
The same applies to other special-rate income, such as lottery winnings and gains from crypto assets.
Before You File
- Check that you are a resident individual and are in the new regime (for the ₹60,000 rebate).
- Split your income into normal-rate income and special-rate income such as LTCG.
- Work out tax on each part separately.
- Claim the Section 156 rebate only against the normal-rate tax, up to ₹60,000.
- If total income is just above ₹12 lakh, check for marginal relief.
- Add cess, then compare your result with your return software.
What to Remember
For eligible resident individuals under the new regime, ₹12 lakh is the income limit and ₹60,000 is the maximum rebate. But “income up to ₹12 lakh means no tax” is not true in every case.
Find out what kind of income you have, calculate tax under the right rules, and then claim the Section 156 rebate.
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Disclaimer: This article is for general education and information only. Your tax and your eligibility for the rebate depend on your own facts and the rules for the relevant Tax Year. It is not tax or legal advice.
About the author: CA Md Akil Ahmed, Ahmed and Associates, Chartered Accountants
