Section 87A Rebate AY 2026-27: Who Qualifies, How to Claim It, and the Capital Gains Trap That Denied Thousands

For AY 2026-27 (FY 2025-26), the Section 87A rebate under the new tax regime effectively makes the first ₹12 lakh of income tax-free for most resident individuals. That is a significant benefit — but the mechanics of how the rebate is computed create a trap that caught thousands of taxpayers off guard in the previous filing season. If you had any capital gains income in FY 2025-26, read this carefully before you file.

What Section 87A Actually Says

Section 87A of the Income Tax Act, 1961 provides a rebate from income tax to resident individuals whose total income does not exceed a specified threshold. The rebate equals the amount of income tax payable, subject to a maximum cap.

For AY 2026-27:

Under the New Tax Regime (Section 115BAC):

• Threshold: Total income ≤ ₹12,00,000


• Maximum rebate: ₹60,000 (equal to the full tax liability on ₹12L under the new slab structure)


• Net tax after rebate: ₹0 for anyone with total income at or below ₹12L

Under the Old Tax Regime:

• Threshold: Total income ≤ ₹5,00,000


• Maximum rebate: ₹12,500


• Net tax after rebate: ₹0 for those at or below ₹5L

The standard deduction of ₹75,000 (new regime) and ₹50,000 (old regime) for salaried individuals reduces gross income before total income is determined. So a salaried person earning up to ₹12,75,000 in gross salary can arrive at a total income of ₹12,00,000 after the standard deduction — and pay zero tax under the new regime.

Who is NOT eligible for 87A:

• Non-Resident Indians (NRIs): Section 87A explicitly restricts the rebate to "resident individuals." NRIs are entirely excluded, regardless of their income level.


• Companies, firms, LLPs, and any non-individual entity.


• Hindu Undivided Families (HUFs) — rebate is for individuals only.

How "Total Income" Is Computed for 87A

The rebate eligibility is tested against total income, not gross total income.

Gross Total Income (GTI) = sum of income from all five heads (salary, house property, business/profession, capital gains, other sources)

Total Income = GTI minus deductions under Chapter VIA (Sections 80C, 80D, 80G, 80TTA, etc.)

Under the old regime, deductions under Chapter VIA can substantially reduce total income. A person with ₹6L GTI but ₹1.5L in 80C + ₹25,000 in 80D has a total income of ₹4,25,000 — well under the ₹5L threshold, so the rebate applies.

Under the new regime, most Chapter VIA deductions are not permitted (with limited exceptions such as employer NPS contribution under Section 80CCD(2)). The rebate threshold of ₹12L applies to total income under the new regime.

The Capital Gains Trap: Why Thousands Lost the Rebate Last Year

Certain categories of income attract a flat/special tax rate rather than slab rates:

• Short-Term Capital Gains on equity/equity funds (Section 111A): 20% (revised from 15% for transactions on or after 23 July 2024)
• Long-Term Capital Gains on equity/equity funds above ₹1.25L (Section 112A): 12.5%
• Long-Term Capital Gains on debt funds, unlisted shares, etc. (Section 112): 12.5% without indexation (for transfers after 23 July 2024)

The rebate under Section 87A applies to tax on total income computed at slab rates. It does NOT apply to tax computed at special flat rates on special-rate income.

Consider a taxpayer under the new regime:

• Salary income (after standard deduction): ₹10,00,000


• STCG under Section 111A: ₹3,00,000


• Total income: ₹13,00,000

Their total income exceeds ₹12L — the rebate is unavailable entirely.

For AY 2026-27: if your total income including STCG/LTCG exceeds ₹12L (new regime), you will not receive the rebate. Plan accordingly — do not hold capital gains until after they would push you above the threshold if you are close to the ₹12L mark.

ITA 2025 Position

The ITA 2025 (applicable from Tax Year 2026-27, i.e., income earned from 1 April 2026) retains the rebate concept. Section 154 of the ITA 2025 is the equivalent of Section 87A of the ITA 1961. For any return relating to FY 2025-26 (AY 2026-27), you are assessed under ITA 1961 — Section 87A applies directly.

Frequently Asked Questions

Q1. I am an NRI but I was in India for more than 182 days in FY 2025-26. Do I qualify for 87A?

If you were in India for 182+ days in FY 2025-26 and meet the residency conditions under Section 6(1), you are a resident individual and eligible for 87A (subject to income limits).

Q2. My total income is ₹11.5L but I also have STCG of ₹80,000. Is my total income ₹11.5L or ₹12.3L for 87A purposes?

STCG under Section 111A is part of your total income. Your total income is ₹12.3L. This exceeds the ₹12L threshold, so the rebate is not available.

Q3. Can I split my capital gains across two financial years to stay under ₹12L?

Capital gains are recognised in the year of transfer (sale). You cannot retrospectively move the tax year of a transaction. However, for future planning, if you have unrealised gains and are close to ₹12L, you can choose WHEN to sell.

Q4. If I claim the rebate and the CPC denies it, what happens?

The CPC will issue an intimation under Section 143(1) with a tax demand. You can file a rectification application under Section 154 or an appeal under Section 246A to contest the denial.

Final Word

The Section 87A rebate is one of the most powerful tax benefits available to resident individual taxpayers — effectively making ₹12 lakh tax-free under the new regime. But the capital gains trap is real. The solution: compute your total income including ALL capital gains before assuming you qualify for the rebate.

Need help computing your 87A eligibility with capital gains? Harun Raaj & Associates works exclusively with NRIs and Indian residents on income tax planning. Visit harunraaj.com to book a consultation.

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