# 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](https://harunraaj.com) to book a consultation.** --- ## See Also - [Section 54 Exemption on House Sale: The One-Property Rule, 54EC Bond Limits, and the 2-Year Deadline Trap](https://www.harunraaj.com/blog/section-54-exemption-house-sale-54ec-bonds-ay-2026-27) - [Capital Gains on Unlisted Shares AY 2026-27: Section 112 Rates, Cost Rules, and Why the Holding Period Is Everything](https://www.harunraaj.com/blog/capital-gains-unlisted-shares-section-112-ay-2026-27) - [ITR Form Selection Guide for AY 2026-27: Who Must File ITR-1, ITR-2, ITR-3, and ITR-4](https://www.harunraaj.com/blog/itr-form-selection-guide-ay-2026-27) Canonical: https://www.harunraaj.com/blog/section-87a-rebate-capital-gains-trap-ay-2026-27