Section 87A rebate FY 2025-26: ₹60,000 up to ₹12L in new regime — and why it stops working for capital gains
For FY 2025-26 the Section 87A rebate is ₹60,000 in the new regime for total income up to ₹12 lakh (₹12,500 up to ₹5 lakh in the old regime). The rebate does not reduce tax on special-rate capital gains — STCG u/s 111A, LTCG u/s 112A, VDA u/s 115BBH. Worked example inside.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
For FY 2025-26 (AY 2026-27), the Section 87A rebate is ₹60,000 in the new tax regime when total income does not exceed ₹12,00,000, and ₹12,500 in the old regime up to ₹5,00,000 — but the rebate does not reduce tax on special-rate capital gains. A salaried taxpayer whose total income is ₹7 lakh can still owe tax on equity STCG, LTCG, or VDA gains because the rebate only wipes the slab-rate portion of the tax. This is the single most common surprise in this year's filing season: ₹12 lakh "zero tax" headlines do not cover capital gains.
Staleness alert: Plenty of pages still quote the FY 2024-25 figures — rebate ₹25,000 up to ₹7 lakh income. Finance Act 2025 raised the new-regime rebate to ₹60,000 with a ₹12 lakh ceiling for FY 2025-26. If a source quotes ₹25,000/₹7 lakh as current, it is a year stale.
The rebate table, both regimes
The rebate is against the tax on the taxpayer's total income, computed after the standard deduction and after slab tax. In the new regime, a ₹12,00,000 pure-salary income pays ₹52,500 of slab tax, which the ₹60,000 rebate wipes to ₹0 — that is the headline. The catch, formalised for capital gains by CBDT Circular No. 7/2024, is that the rebate cannot be used to reduce tax computed at special rates.
The capital-gains carve-out
These three categories are charged at special rates and are outside the rebate's reach:
How the arithmetic actually works: your tax is computed as (tax on special-rate income at the special rate) plus (slab tax on the remaining income). The Section 87A rebate, capped at ₹60,000, reduces only the slab-rate portion. If special-rate tax is ₹20,000, that ₹20,000 is payable in full even when total income is far below ₹12 lakh.
What changed FY 2025-26: before/after diff
The rebate amount tripled and its ceiling nearly doubled — but the capital-gains carve-out was not relaxed. More taxpayers now sit inside the ₹12 lakh zero-tax band, which makes the carve-out bite for a larger population: a modest equity STCG that used to sit on top of taxable income above ₹7 lakh now sits inside a "zero tax" band, yet still generates tax.
Worked example: Priya has salary plus equity STCG
Persona: Priya, salaried resident individual, new regime, FY 2025-26.
Facts:
- Gross salary ₹6,00,000
- Short-term capital gain on listed equity ₹1,00,000 (s.111A, held < 12 months, STT paid)
- Total income = ₹6,00,000 + ₹1,00,000 = ₹7,00,000 — comfortably inside the ₹12 lakh ceiling
Step 1 — Slab tax on salary (new regime)
Taxable salary = ₹6,00,000 − ₹75,000 standard deduction = ₹5,25,000.
Slab tax = 5% on (₹5,25,000 − ₹4,00,000) = ₹6,250.
Step 2 — Special-rate tax on STCG
₹1,00,000 × 20% (s.111A) = ₹20,000.
Step 3 — Apply the rebate
Tax before rebate = ₹6,250 + ₹20,000 = ₹26,250. Priya qualifies for the ₹60,000 rebate (total income ₹7 lakh ≤ ₹12 lakh), but it can only reduce the slab-rate portion of ₹6,250 — wiping it to ₹0. The ₹20,000 STCG tax is untouched.
Result: Priya pays ₹20,000 (plus 4% cess = ₹800, total ₹20,800) — despite a ₹7 lakh total income that would normally mean zero tax. The ₹1 lakh equity trade, not the salary, is what generates the liability. Reproduce it in the Old vs New Regime Calculator, which applies the carve-out automatically.
Marginal relief just above ₹12 lakh
Above the ₹12,00,000 ceiling, the rebate vanishes, but marginal relief caps the tax: at total income marginally above ₹12 lakh, tax cannot exceed the income over ₹12 lakh. The carve-out interacts here too — marginal relief is computed on the tax payable, and special-rate income is included at its special-rate tax. Run the numbers line by line before assuming a figure for income just over the ceiling.
Frequently asked questions
1. What is the Section 87A rebate for FY 2025-26?
₹60,000 in the new regime when total income does not exceed ₹12,00,000; ₹12,500 in the old regime up to ₹5,00,000. Finance Act 2025 raised the new-regime figures from ₹25,000/₹7 lakh.2. Does the rebate apply to capital gains?
Not to special-rate capital gains. The rebate does not reduce tax on STCG u/s 111A, LTCG u/s 112A, or VDA income u/s 115BBH (per CBDT Circular No. 7/2024). It only reduces the slab-rate portion of the tax.3. My total income is ₹7 lakh but I had equity STCG — why do I pay tax?
Because the ₹20,000 STCG tax (₹1 lakh at 20%) is outside the rebate. The rebate wiped your slab tax on salary, but the special-rate STCG tax remains payable in full.4. What is the old regime rebate ceiling?
₹5,00,000 of taxable income, with a maximum rebate of ₹12,500. Above ₹5 lakh taxable, the old-regime rebate is unavailable.5. I earn ₹12.5 lakh — do I get any rebate?
No full rebate, but marginal relief. Total income above ₹12,00,000 forfeits the ₹60,000 rebate; marginal relief caps the tax at the income over ₹12 lakh for income just above the ceiling.6. Does the ₹1.25 lakh LTCG exemption still apply alongside the rebate?
Yes, but separately. The s.112A exemption (₹1,25,000) applies first to reduce LTCG; the residual LTCG is taxed at 12.5%, and the 87A rebate cannot reduce that residual tax.---
Last verified: 2026-08-05 (FY 2025-26 / AY 2026-27)
Sources: s.87A, Income-tax Act, 1961, as amended by Finance Act 2025 (rebate ₹60,000 / ₹12,00,000 ceiling in the new regime; ₹12,500 / ₹5,00,000 in the old regime); CBDT Circular No. 7/2024 (rebate not applicable to special-rate capital gains); s.111A (STCG 20%), s.112A (LTCG 12.5%, ₹1,25,000 exemption), s.115BBH (VDA 30%); marginal relief on the ₹12 lakh ceiling. Worked-example arithmetic reproducible from the figures above. For your exact income mix, run the Old vs New Regime Calculator or book a consultation at harunraaj.com.
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