No Tax Up to ₹12 Lakhs? How Section 87A Makes It Possible (FY 2025-26)

Everyone Says ‘No Tax up to ₹12 Lakhs’ — But Do You Know Why? – The Complete Truth Behind Section 87A (FY 2025-26)

The claim of “no tax up to ₹12 lakhs” is true but comes with conditions tied to Section 87A of the Income-tax Act, 1961. Tax liability begins once income exceeds the basic exemption limit—₹2.5 lakh under the old regime and ₹4 lakh under the new regime—but Section 87A provides a rebate that can reduce tax liability to zero for eligible resident individuals. The rebate applies only if total income is within specified limits: up to ₹5 lakh under the old regime and ₹12 lakh under the new regime, with the rebate capped at ₹12,500 and ₹60,000 respectively. It excludes HUFs, firms, LLPs, and companies, and does not cover LTCG under Section 112A. Minor income exceedances can disqualify the rebate, and health and education cess applies separately. Understanding Section 87A, along with concepts like marginal relief, is essential for low and middle-income taxpayers to legally minimize tax liability, clarifying misconceptions about tax-free income thresholds.

No tax up to ₹12 lakhs — is it really true?

Yes, it is true… but there’s a catch.

Let me break it down for you.

Tax liability technically begins once your income exceeds the Basic Exemption Limit:

• ₹2,50,000 under the Old – Optional Tax Regime
• ₹4,00,000 under the New – Default Tax Regime (Section 115BAC)

So then, how is it possible that there’s no tax payable up to ₹12 lakhs?

This is where the real game begins.

The answer lies in one powerful but often misunderstood provision — Section 87A (Rebate).

Because of this section, eligible taxpayers can get a rebate of tax, effectively reducing their final tax liability to zero, even when income goes well beyond the basic exemption limit.

Let me break down Section 87A in detail and explain how this actually works.

Section 87A of the Income-tax Act, 1961 provides a rebate of income tax to resident individual taxpayers whose income falls within specified limits.

This provision is especially beneficial for low and middle-income earners, as it can reduce tax liability to zero in certain cases.

Who is Eligible for Rebate under Section 87A?

To claim rebate under Section 87A, All the following conditions must be satisfied:

1. The taxpayer must be a Resident Individual

2. The Total Income (after deductions, if any) should not exceed the prescribed limit

3. Rebate is not available to HUFs, firms, LLPs, or companies

Rebate u/s 87A

Key Points to Remember

√ Available only to Resident Individuals

√ Rebate applies to all types of income except LTCG u/s 112A

√ This Rebate shall be reduced before adding Health and Education Cess (HES)

√ While Opting for New Regime – an additional concept called Marginal relief should also be considered. (In the next part, I’ll break down the concept of Marginal Relief and explain how it actually works.

√ If income exceeds ₹5,00,000 / ₹12,00,000 even by ₹1, rebate will not available, subject to 288A/288B.

√ 288A/288B: Amount of Total Income and Tax rounded off to Nearest ₹10.

Let me help you understand Section 87A by walking you through a few examples.

1. Under Old – Optional Tax Regime

2. Under New – Default Tax Regime (Sec 115BAC)

Once you understand Section 87A, the ‘no tax up to ₹12 lakhs’ statement finally makes sense.

If this clarified Section 87A for you, share it with someone who still believes tax is zero by default. Still confused about Section 87A? Drop your question in the comments—I’ll explain.