The ₹12 lakh limit is the easy part of section 87A. The marginal relief calculation just above it is where answers go wrong. This post works through the calculation the way a tax exam answer would: formula first, then two solved numericals for FY 2025-26 (AY 2026-27) under the Income-tax Act, 1961. The examples use salaried individuals because our India income tax calculator models salary income with the standard deduction.
These rules are for FY 2025-26 (AY 2026-27) returns, the ones being filed now, as set out on the e-filing portal’s page for salaried individuals for AY 2026-27.
The rule in plain words
The Income Tax Department’s FAQ on section 87A for FY 2025-26 says a resident individual taxed under section 115BAC(1A) gets a rebate of up to ₹60,000 where total income does not exceed ₹12,00,000. It adds that where total income exceeds ₹12,00,000 and the tax payable exceeds the difference between total income and ₹12,00,000, the person can claim a rebate with marginal relief. The relief is the difference between the tax payable and that excess income.
In practice, someone who earns ₹15,000 above the limit should not pay ₹62,250 of tax on it. Marginal relief limits the tax to the ₹15,000 earned above ₹12,00,000. As income rises, the slab tax grows more slowly than the excess income, and at some point the relief disappears.
The slab rates come from the e-filing portal page for salaried individuals, AY 2026-27: nil up to ₹4,00,000, 5% to ₹8,00,000, 10% to ₹12,00,000, 15% to ₹16,00,000, 20% to ₹20,00,000, 25% to ₹24,00,000 and 30% above that. The same page says the 4% health and education cess is charged on income tax plus surcharge. The ₹75,000 standard deduction for salary under the new regime is listed on the Department’s income from salary page.
Section 87A marginal relief formula
Work out the normal slab tax first. Then compare it with the income above ₹12,00,000. The smaller of the two is the tax before cess.
Marginal relief under section 87A (new regime, FY 2025-26)
Tax before cess = MIN( Slab tax on total income , Total income − ₹12,00,000 )
Rebate with marginal relief = Slab tax − Tax before cess
If total income is ₹12,00,000 or less, the rebate simply equals the slab tax, up to ₹60,000, and tax before cess is nil.
Solved examples
Example 1: salary just above the ₹12 lakh limit
Question: Mr A, a resident individual aged 35, earns a gross salary of ₹12,90,000 in FY 2025-26 and has no other income. He stays in the new tax regime. Calculate his tax liability after section 87A marginal relief.
Solution:
- Total income = Gross salary − Standard deduction = ₹12,90,000 − ₹75,000 = ₹12,15,000.
- Slab tax: ₹0 on the first ₹4,00,000 + ₹20,000 (5% of ₹4,00,000) + ₹40,000 (10% of ₹4,00,000) + ₹2,250 (15% of ₹15,000) = ₹62,250.
- Income above ₹12,00,000 = ₹12,15,000 − ₹12,00,000 = ₹15,000.
- Slab tax (₹62,250) is more than the excess income (₹15,000), so marginal relief applies. Rebate = ₹62,250 − ₹15,000 = ₹47,250.
- Tax after rebate = ₹15,000. Cess at 4% = ₹600.
Answer: Total tax payable = ₹15,000 + ₹600 = ₹15,600. Without marginal relief it would have been ₹64,740.
Example 2: salary where marginal relief no longer helps
Question: Ms B, a resident individual, earns a gross salary of ₹13,50,000 in FY 2025-26, has no other income and is taxed under the new regime. Does she get any section 87A rebate? Calculate her tax.
Solution:
- Total income = ₹13,50,000 − ₹75,000 = ₹12,75,000. This is above ₹12,00,000, so the full rebate is not available.
- Slab tax = ₹20,000 + ₹40,000 + 15% of ₹75,000 (₹11,250) = ₹71,250.
- Income above ₹12,00,000 = ₹75,000.
- Slab tax (₹71,250) is less than the excess income (₹75,000), so marginal relief does not apply. Rebate = ₹0.
- Cess at 4% on ₹71,250 = ₹2,850.
Answer: Total tax payable = ₹74,100, with no section 87A rebate.
Where the relief starts and stops
The table below runs four salaries through the same calculator engine. Look at how tax jumps between ₹12,75,000 and ₹12,90,000 even with relief, then follows the normal slabs again by ₹13,50,000.
| Gross salary | Total income | Slab tax | 87A rebate | Total tax incl. cess |
|---|---|---|---|---|
| ₹12,75,000 | ₹12,00,000 | ₹60,000 | ₹60,000 | ₹0 |
| ₹12,90,000 | ₹12,15,000 | ₹62,250 | ₹47,250 | ₹15,600 |
| ₹13,20,000 | ₹12,45,000 | ₹66,750 | ₹21,750 | ₹46,800 |
| ₹13,50,000 | ₹12,75,000 | ₹71,250 | ₹0 | ₹74,100 |
Relief ends where the slab tax equals the income above ₹12,00,000. Between ₹12,00,000 and ₹16,00,000, slab tax is ₹60,000 plus 15% of the excess. Setting that equal to the excess gives an excess of about ₹70,588, so total income of about ₹12,70,588. Above that point the normal slab tax is already lower than the excess.
One detail surprises students. Marginal relief caps the income tax, not the cess. In Example 1, Mr A earns ₹15,000 above the limit and pays ₹15,600 in total, so the cess of ₹600 takes his bill slightly above the extra income. Write the cess as a separate line after the rebate so the examiner can see the cap was applied first.
A four-line layout works for any question in this band: total income, slab tax, excess over ₹12,00,000, and the lower of the two. Add cess last. If the excess is the larger figure, write “marginal relief not available” and continue with normal slab tax.
Common mistakes students make
- Applying the ₹12,00,000 test to gross salary instead of total income after the ₹75,000 standard deduction.
- Treating the rebate as all-or-nothing and charging full slab tax at ₹12,15,000 of income, ignoring marginal relief.
- Calculating cess on the slab tax before the rebate. Cess is charged on the tax left after it.
- Using the old-regime figures (₹5,00,000 limit, ₹12,500 rebate) in a new-regime question.
- Including capital gains taxed at special rates in the rebate calculation, which the Department’s Budget brief says should be excluded.
Check your own figure
Enter your gross salary in the income tax calculator to see the slab tax, the rebate and cess for both regimes. It handles the marginal relief band automatically, but it assumes salary income only, so add other income before relying on the result. Before choosing a regime, read our old vs new tax regime comparison. From tax year 2026-27 the Income-tax Act, 2025 applies, and our guide to the new Act shows how the rebate section is renumbered.
This is an educational example for FY 2025-26 and not tax advice. Your return, the Department’s utility and any notice issued to you are the final word on your liability.
Last updated: 23 October 2026