This was Section 87A under the Income-tax Act 1961. See the mapping
Chapter IX: Rebates and Reliefs
Section 156, Income-tax Act 2025: Rebate of income-tax in case of certain individuals
Plain-English summary
This is the rebate that makes income up to ₹12 lakh tax-free on the new regime, the provision everyone knew as Section 87A. A resident individual whose total income stays within ₹12,00,000 gets up to ₹60,000 knocked off the bill, which is exactly the slab tax on that income, so nothing is payable. Salaried taxpayers add the ₹75,000 standard deduction and reach ₹12.75 lakh of salary with zero tax. Marginal relief cushions incomes just past the line. On the old regime the rebate is smaller: ₹12,500, for total income up to ₹5,00,000. Capital gains taxed at special rates sit outside the rebate in both regimes.
What changed when Section 87A became Section 156?
The numbers carried over; the drafting got cleaner. Section 156 takes the rebate that lived in Section 87A of the 1961 Act and lays it out in three subsections: 156(1) holds the old-regime rebate (₹12,500 where total income does not exceed ₹5,00,000), 156(2) holds the new-regime rebate (₹60,000 where total income does not exceed ₹12,00,000, plus marginal relief just past it), and 156(3) caps the rebate at the slab tax actually payable, so it can reduce a bill to zero but never below.
The ₹12 lakh ceiling itself is not a 2025-Act invention. The Finance Act 2025 lifted the new-regime rebate to this level under the old law for FY 2025-26, and Section 156 carries the same numbers into the new Act from TY 2026-27.
Section number and subsection structure per practitioner copies of the enacted Act (ClearTax, EZTax, AUBSP); pending CA verification against the Gazette text.†
Who qualifies for the rebate?
Resident individuals only, on both limbs. Age and occupation are irrelevant, but these gates are absolute:
- You must be a resident for the tax year. Non-residents get no rebate however modest their Indian income; for them the slabs bite from the first rupee above the basic exemption.
- You must be an individual. HUFs, firms, LLPs and companies sit outside Section 156 even when their income is below the limits.
- Your total income must stay within the limb's ceiling: ₹12,00,000 on the new regime, ₹5,00,000 on the old. The test looks at total income including any capital gains, so a good stock-market year can push you past the line.
- The rebate offsets slab-rate tax only. Tax on income charged at special rates, most commonly listed equity gains, stays payable even below the ceiling.
Senior citizens qualify like anyone else. On the old regime the higher exemption limits for 60-plus and 80-plus taxpayers work alongside the ₹12,500 rebate; on the new regime age changes nothing.
What are the rebate amounts and income limits?
The ₹60,000 figure is not arbitrary: it is exactly the new-regime slab tax on ₹12,00,000 (5% on the ₹4L–₹8L band is ₹20,000, 10% on ₹8L–₹12L is ₹40,000). The same logic set ₹12,500 on the old regime (5% on ₹2.5L–₹5L). Each rebate is calibrated to zero the bill at its ceiling, not a rupee beyond.
| Regime | Total income up to | Maximum rebate | Effect |
|---|---|---|---|
| New regime (Section 202) | ₹12,00,000 | ₹60,000 | Slab tax fully offset; zero tax payable |
| New regime, salaried | ₹12,75,000 of salary | ₹60,000 | The ₹75,000 standard deduction brings taxable income to ₹12,00,000 |
| Old regime | ₹5,00,000 | ₹12,500 | Slab tax fully offset; zero tax payable |
How does marginal relief work just past ₹12 lakh?
Cross ₹12,00,000 by a rupee and the rebate would vanish, turning a zero bill into roughly ₹62,400 with cess. Marginal relief is the cushion: where income exceeds ₹12,00,000, Section 156(2)(b) trims the rebate so that the tax payable never exceeds the amount by which income crossed the line.
Worked through: at ₹12,40,000 of total income the slab tax is ₹66,000, but the excess over ₹12,00,000 is only ₹40,000, so ₹40,000 is the tax. The relief tapers as income rises and runs out at ₹12,70,588; past that point ordinary slab tax is already below the excess and the normal computation takes over.
One sharp corner: the cap applies to income-tax before the 4% health and education cess. Cess rides on top of the relieved figure, so the ₹12,40,000 earner actually pays ₹41,600, slightly more than the ₹40,000 of income above the line.
The old-regime rebate has no marginal relief. At ₹5,00,100 of total income the ₹12,500 disappears entirely, a cliff the 2025 Act keeps.
Why can tax still be payable below ₹12 lakh?
Because the rebate only offsets tax computed at the slab rates of Section 202(1). Income charged at special rates keeps its tax even when total income is under the ceiling:
- Long-term gains on listed equity above the ₹1.25 lakh exemption, taxed at 12.5% (Section 198 of the new Act, the old 112A†): the rebate has never applied to these in either regime.
- Short-term gains on listed equity, taxed at 20% (Section 196, the old 111A†): outside the new-regime rebate. The Finance Act 2025 settled a long-running dispute by restricting the rebate to slab-rate tax.
- Flat-rate incomes such as lottery, game-show and online-gaming winnings at 30%: taxed in full.
The ₹12 lakh test itself counts these amounts, so special-rate income can also push total income over the ceiling and cost you the rebate on your regular income too.
How do you claim the rebate?
You file nothing extra. The rebate is applied inside the tax computation itself: the return utilities and employer payroll software knock it off automatically once your regime and total income are known. What you must still do is file the return; the rebate reduces tax, it does not remove the filing obligation where income exceeds the basic exemption limit.
Salaried taxpayers feel it through TDS. An employer projecting total income within ₹12,00,000 on the new regime deducts no tax across the year, so declare your regime choice early and the projection stays right.
Should the rebate change how you plan?
The rebate checker linked below answers the question for your own figures in two inputs.
Three practical consequences:
- Under ₹12 lakh on the new regime there is nothing left to optimise: extra deductions have no value once the rebate already zeroes the bill.
- Just above ₹12 lakh, the deductions the new regime does allow (employer NPS contributions most commonly) can pull income back under the line and turn a five-figure bill into zero.
- With capital gains in the mix, run the numbers before assuming zero tax: the rebate ignores special-rate income entirely, and the gains can cost you the rebate on everything else.
Worked examples
Salaried, ₹12.6 lakh salary, zero tax
Nikhil earns ₹12,60,000 in TY 2026-27 on the new regime. The ₹75,000 standard deduction leaves ₹11,85,000 of taxable income. Slab tax: ₹20,000 on the ₹4L–₹8L band plus ₹38,500 at 10% on the rest, ₹58,500 in all. That is under the ₹60,000 rebate cap, so Section 156 wipes it out and he pays nothing.
₹12.4 lakh of taxable income, marginal relief
Sana's taxable income lands at ₹12,40,000, ₹40,000 past the line. Slab tax works out to ₹66,000, but marginal relief caps the tax at the ₹40,000 excess. With 4% cess she pays ₹41,600. At ₹12,00,000 she would have paid zero: those last ₹40,000 of income cost her ₹41,600, the one band where earning slightly less can leave you slightly ahead.
₹11.6 lakh total income, but tax is still payable
Rohan has ₹10,40,000 of salary income after the standard deduction plus ₹1,20,000 of short-term gains on listed shares. Total income ₹11,60,000, under the ceiling. The rebate wipes his ₹44,000 of slab tax, but the gains are taxed at the special 20% rate: ₹24,000 plus ₹960 cess, ₹24,960 payable despite staying below ₹12 lakh.
Read the section as enacted
The statutory text is loaded verbatim from the Gazette copy of the Income-tax Act 2025, never from secondary sources or memory. This section's text is in the verification queue; the CA-checked copy appears here the moment it clears.
Section 156 FAQs
Is the ₹12 lakh limit on gross salary or taxable income?
Taxable income, formally total income. A salaried person on the new regime gets there from ₹12,75,000 of gross salary because the ₹75,000 standard deduction comes off first. Any other deduction the new regime allows, such as an employer's NPS contribution, also counts before the test.
Do NRIs get the Section 156 rebate?
No. Both limbs are for resident individuals only. A non-resident with ₹6 lakh of Indian income pays full slab tax on it even though a resident with the same income would pay nothing on the new regime.
Does the rebate cover tax on capital gains?
Mostly not. Equity long-term gains taxed at 12.5% (Section 198, old 112A†) have never been covered in either regime, and from FY 2025-26 the new-regime rebate is confined to slab-rate tax, leaving 20% short-term equity gains outside too. Slab-rate income still gets the rebate if total income stays within ₹12 lakh.
What happens if my income is ₹12,00,001?
Marginal relief applies. Your tax is capped at the ₹1 by which you crossed the line (plus cess), instead of the roughly ₹62,400 the slabs would otherwise produce. The relief shrinks as income rises and is exhausted at ₹12,70,588.
Does the old regime have marginal relief too?
No. The old-regime rebate is a cliff: at ₹5,00,000 of total income you pay nothing, and at ₹5,00,100 the whole ₹12,500 rebate is gone and the bill is about ₹13,020 with cess. Only the new-regime limb has the cushion.
Was the limit always ₹12 lakh?
No, it moved fast. On the new regime the rebate covered income up to ₹7 lakh (maximum ₹25,000) for FY 2023-24 and FY 2024-25; the Finance Act 2025 raised it to ₹12 lakh and ₹60,000 from FY 2025-26, and Section 156 carries those figures forward. The old-regime ₹5 lakh and ₹12,500 have been steady since FY 2019-20.
Do senior citizens get a bigger rebate?
No, the amounts are the same at every age. On the old regime a resident senior's higher basic exemption (₹3 lakh at 60, ₹5 lakh at 80) does the first round of work and the ₹12,500 rebate applies after it. The new regime uses one slab structure for all ages.
Do I still have to file a return if the rebate makes my tax zero?
Yes, if your income is above the basic exemption limit (₹4 lakh on the new regime, ₹2.5 lakh on the old for under-60s). The rebate is applied inside the return; skipping the return forfeits it and invites a notice.