Mr. Karan is a salaried person. His total income is Rs. 11,80,000. While reading about income tax, he notices something strange. Some websites talk about Section 87A while others mention Section 156.
- “Has the rebate been removed?”
- “Will I have to pay more tax?”
- “Which section actually applies now?”
If these questions sound familiar, you’re not alone. In this guide, I’ll explain what has changed, what hasn’t, and how the rebate works under the new Income Tax Act in simple language.
What You’ll Learn in This Article
In this article, I will explain who can claim the rebate, the eligibility conditions, and how it affects your final tax amount.
By the end of this guide, you’ll understand:
- How the Tax Rebate Works.
- What Is the Rebate Under Section 156?
- Who Can Claim the Rebate Under Section 156?
- How Is the Rebate Under Section 156 Calculated?
- Common Mistakes to Avoid While Claiming the Rebate Under Section 156
- TaxStudyOnline’s Final Takeaway
What Has Actually Changed?
In the Income Tax Act, 2025, the rebate provision has been renumbered from Section 87A to Section 156. Only the section number is different. The benefit itself has not been removed. Taxpayers can still claim the rebate if they meet the eligibility conditions.
Does This Affect Your Tax Rebate?
The short answer is: No. Taxpayers have not lost the tax rebate just because the Section number has changed.
Let’s understand each point one by one.
How the Tax Rebate Works
- Imagine you get a restaurant bill.
- Before you pay, the restaurant gives you a discount.
- You still ate the same food.
- But the final bill you pay becomes lower.
- A tax rebate works in a very similar way.
- The government first calculates your tax liability.
- If you qualify for a rebate, it simply reduces the final tax amount you need to pay.
What Is the Rebate under Section 156?
Section 156 is a provision in the Income Tax Act, 2025 that allows eligible taxpayers to reduce their income tax liability through a rebate if they meet certain eligibility conditions explained below.
Section 156 in the Income Tax Act, 2025 simply replaces Section 87A of the Income Tax Act, 1961.
In simple terms,
If your income is within the eligible limit, the government reduces your final tax amount by providing a rebate.
Who Can Claim the Rebate Under Section 156?
If you have opted for the old tax regime:
If you are a resident individual, have opted for the old tax regime, and your total income is Rs. 5,00,000 or less, you can get a tax rebate up to Rs. 12,500.
If you have opted for the new tax regime:
If you are a resident individual, have opted for the new tax regime, and your total income is Rs. 12,00,000 or less, you can claim a tax rebate of up to Rs. 60,000.
If your total income is a little more than Rs. 12,00,000, you still do not lose the entire rebate immediately. Instead, you get marginal relief, which is explained in the calculation section below.
The rebate under Section 156 can only reduce the tax you have to pay. It cannot result in a tax refund or make your tax amount negative.
How Is the Rebate Under Section 156 Calculated?
The rebate under Section 156 is applied after calculating your income tax liability.
A. Rebate Calculation (Old Tax Regime) – Total Income up to Rs. 5,00,000
Step 1: Calculate Total Income
Example : Total Income = Rs. 5,00,000
Step 2: Calculate Income Tax before rebate as per tax slab rates
Old tax regime tax slab rates:
- Up to Rs. 2,50,000 = Nil
- Rs. 2,50,001 to Rs. 5,00,000 = 5%
Tax calculation as per old tax regime:
- Up to Rs. 2,50,000 = Rs. 0
- On (Rs. 5,00,000 − Rs. 2,50,000) = Rs. 2,50,000 x 5% = Rs. 12,500
Step 3: Calculate Rebate
Rebate = Lower of:
- Tax payable = Rs. 12,500
- Maximum rebate under Section 156 = Rs. 12,500
Therefore Rebate as per old tax regime = Rs. 12,500
Step 4: Final Tax Payable
Tax Payable = Tax before rebate − Rebate
Rs. 12,500 − Rs. 12,500 = Rs. 0
B. Rebate Calculation (New Tax Regime) – Total Income up to Rs. 12,00,000
Step 1: Calculate Total Income
Example : Total Income = Rs. 12,00,000
Step 2: Calculate Income Tax as per tax slab rates before applying the rebate
New Regime tax slab rates:
- Up to Rs. 4,00,000 = Nil
- Rs. 4,00,001 to Rs. 8,00,000 = 5%
- Rs. 8,00,001 to Rs. 12,00,000 = 10%
Tax calculation as per new regime:
- Up to Rs. 4,00,000 = Rs. 0
- On (Rs. 8,00,000 − Rs. 4,00,000) = Rs. 4,00,000 x 5% = Rs. 20,000
- On (Rs. 12,00,000 − Rs. 8,00,000) = Rs. 4,00,000 x 10% = Rs. 40,000
Step 3: Calculate Rebate
Rebate = Lower of:
- Tax payable = Rs. 60,000 [ Rs. 20,000 + Rs. 40,000]
- Maximum rebate under Section 156 = Rs. 60,000
Therefore Rebate as per new regime = Rs. 60,000
Step 4: Final Tax Payable
Tax Payable = Tax before rebate − Rebate
Rs. 60,000 − Rs. 60,000 = Rs. 0
C. Marginal Relief Calculation (Income Above Rs. 12,00,000)
If total income exceeds Rs. 12,00,000, marginal relief is allowed so that the additional tax does not exceed the additional income above Rs. 12,00,000.
Example : Total Income = Rs. 12,10,000
Step 1: Calculate excess income above Rs. 12,00,000
Excess Income = Total Income − Rs. 12,00,000
Excess income over Rs. 12,00,000 = Rs. 10,000
Step 2: Calculate tax before marginal relief
Calculate Tax on Rs. 12,10,000 (as per new regime)
| Income Slab | Tax Rate | Calculation | Tax Amount |
| Up to Rs. 4,00,000 | Nil | Rs. 4,00,000 × 0% | Rs. 0 |
| Rs. 4,00,001 – Rs. 8,00,000 | 5% | Rs. 4,00,000 × 5% | Rs. 20,000 |
| Rs. 8,00,001 – Rs. 12,00,000 | 10% | Rs. 4,00,000 × 10% | Rs. 40,000 |
| Rs. 12,00,001 – Rs. 12,10,000 | 15% | Rs. 10,000 × 15% | Rs. 1,500 |
| Total Tax Before Rebate | Rs. 61,500 |
Step 3: Calculate Marginal Relief
Marginal Relief = Tax amount before relief − Excess income
Marginal Relief = Rs. 61,500 − Rs. 10,000
Marginal Relief = Rs. 51,500
Step 4: Final Tax Payable after Marginal Relief
Final Tax Payable = Tax before relief − Marginal Relief
Final Tax Payable = Rs. 61,500 − Rs. 51,500 = Rs. 10,000
Add: Health and Education Cess @ 4% = Rs. 10,000 x 4 % = Rs. 400
Total Tax Payable after Marginal Relief = Rs. 10,400
Note: marginal relief is available only up to the point where the extra tax is equal to the extra income you earned above Rs. 12,00,000. After that, if the tax becomes higher than the extra income, you will not get marginal relief.
Common Mistakes to Avoid While Claiming the Rebate Under Section 156
- Choosing the Wrong Tax Regime: The old and new tax regimes have different rebate limits and rules. Always follow the rules of the regime you have chosen.
- Applying Rebate on the Wrong Amount: Rebate is reduced from your tax amount, not from your total income.
- Taking More Rebate Than Allowed: You cannot claim a rebate amount higher than your actual tax liability.
- Claiming Rebate Without Meeting Conditions: Section 156 rebate is available only to eligible resident individual taxpayers (explained above).
- Missing Out on Marginal Relief: If your income is slightly above Rs. 12,00,000 under the new regime, check whether you are eligible for marginal relief before calculating your final tax.
- Not Checking the Latest Tax Rules: Tax limits and rules change every year, so always check the rules for the relevant financial year.
TaxStudyOnline’s Final Takeaway
Before you calculate your tax rebate, keep these points in mind:
- Choose the correct tax regime before calculating your tax.
- Check whether you meet the eligibility conditions for the rebate.
- Calculate the rebate on your tax liability, not on your total income.
- If your income is slightly above Rs. 12,00,000 under the new tax regime, check if marginal relief applies.
- Marginal relief is not available under the old tax regime.
- Section 156 generally does not provide rebate against certain income taxed at special rates.
- Make sure you are using the tax rules and rebate limits for the correct financial year.
Taking a few minutes to verify these details can help you avoid calculation mistakes and ensure you claim the rebate you are eligible for.
Conclusion
The tax rebate has not been removed. It has just been moved and renamed—from Section 87A to Section 156 in the Income Tax Act, 2025.
Your eligibility depends on your tax regime, residential status, and total income.
Always calculate your tax first, then apply the rebate, and don’t forget to check marginal relief if your income is just above Rs. 12,00,000.
FAQs
1. Is Section 87A abolished under the Income Tax Act, 2025?
No. Section 87A has simply been renumbered as Section 156 in the Income Tax Act, 2025. The tax rebate benefit continues to be available, subject to the applicable eligibility conditions.
2. Who is eligible to claim the rebate under Section 156?
Only resident individual taxpayers can claim the rebate under Section 156. Under the old tax regime, the rebate is available if the total income is up to Rs. 5,00,000. Under the new tax regime, the rebate is available if the total income is up to Rs. 12,00,000, subject to the prescribed conditions.
3. How much tax rebate can I claim under Section 156?
The maximum rebate available is:
- Up to Rs. 12,500 under the old tax regime (for income up to Rs. 5,00,000).
- Up to Rs. 60,000 under the new tax regime (for income up to Rs. 12,00,000).
However, the rebate cannot exceed your actual tax liability.
4. What Is Marginal Relief Under Section 156?
Marginal relief is a benefit available under the new tax regime when your total income is slightly above Rs. 12,00,000. It ensures that the additional tax does not exceed the additional income above Rs. 12,00,000, preventing a sudden increase in tax liability.
5. Can I claim the Section 156 rebate if I am a non-resident or if my tax liability is zero?
No. The rebate under Section 156 is available only to resident individual taxpayers. Also, the rebate can only reduce your tax liability to zero—it cannot create a tax refund or result in a negative tax amount.
