Can an NRI claim the Section 87A rebate?

No. The rebate is available only to resident individuals. A non-resident with Indian taxable income below the threshold still pays tax on it at the applicable slab rates, which is often the biggest single difference between an NRI's liability and a resident's on the same income.

Is Section 87A a deduction or a rebate?

A rebate. A deduction reduces the income on which tax is computed; a rebate reduces the tax after it has been computed. That is why 87A can bring your liability to nil without changing your total income figure, and why it can never exceed the tax you actually owe.

What happens if my income is just over the 87A threshold?

The basic rebate falls away entirely, which creates a cliff. Under the new regime, marginal relief limits the additional tax to roughly the amount by which you crossed the threshold, so the effective result is a sharp taper rather than a sudden large bill. Marginal relief has to be computed, and utilities generally apply it automatically.

Does 87A apply to capital gains?

Not straightforwardly. Income taxed at special rates, such as long-term capital gains on listed equity, is treated differently from ordinary slab income for this purpose, and the interaction has been both litigated and changed at the utility level. If capital gains form part of your income, confirm the position for the specific year rather than assuming the rebate covers your whole liability.

Income Tax

Section 87ARebate for Small Taxpayers

Section 87A is a rebate that wipes out the tax liability of resident individuals whose total income stays below a threshold, which is why many people pay no tax despite having taxable income.

Income-tax Act, 1961Reviewed 19 August 2026

In short

It is a rebate against tax, not a deduction from income. It applies after your tax is computed, which is why it can reduce liability to nil without changing your taxable income.
The threshold and the maximum rebate differ between the old and the new regime, and the new regime's threshold is substantially higher.
It is a cliff, not a taper, on the basic entitlement: cross the income threshold by a rupee and the rebate falls away entirely. Marginal relief exists in the new regime to soften that edge.
The rebate cannot exceed your actual tax liability, so it never produces a refund by itself.
Capital gains taxed at special rates are treated differently from ordinary income for this purpose, which is a frequent source of unexpected liability.

Who it applies to

Resident individuals only. Non-residents, HUFs, firms, and companies cannot claim it
Assessees whose total income after deductions stays within the threshold prescribed for their chosen regime
Both the old and the new regime, but with different thresholds and different rebate amounts

How it works

Section 87A is the mechanism behind the sentence people repeat every Budget season: income up to a certain figure is tax-free. Strictly, it is not tax-free at all. The slabs still apply, tax is still computed on your income above the basic exemption limit, and then Section 87A rebates that computed tax away entirely if your total income is under the threshold. The distinction sounds academic until it matters, and it matters in two specific situations.

The first is the cliff. Because the rebate is keyed to total income rather than tapering with it, a taxpayer a rupee over the threshold loses the whole rebate and can face a tax bill far larger than the extra rupee of income. The new regime addresses this with marginal relief, which caps the additional tax at the amount of income by which the threshold was crossed, so the effective outcome is a steep taper rather than a wall. Understanding whether marginal relief applies to your situation is what turns a nasty surprise into a manageable one.

The second is capital gains. Income taxed at special rates, notably long-term capital gains on listed equity, does not behave like slab income here. The interaction between the rebate and specially-taxed income has been a live area of dispute and utility-level change, and it is the reason a taxpayer whose salary is comfortably below the threshold can still find tax payable after selling shares. If capital gains are in the picture, this is worth checking specifically rather than assuming the rebate covers everything.

The thresholds and rebate amounts have been revised repeatedly and differ by regime, most recently and substantially for the new regime. Because these figures change with each Finance Act and a stale number here would be worse than none, the current amounts and worked examples are kept in the regime comparison guide, which is updated as the law moves.

One eligibility point that catches non-residents: Section 87A is available only to resident individuals. An NRI with Indian income below the threshold pays tax on it without the rebate, which is often the largest single difference between their liability and a resident's on identical income.

Also searched as: 87A rebate, section 87A, tax rebate, 87a rebate applicability.

Frequently asked questions

Worked detail on this section

Current rates, limits, and step-by-step process live in these guides, which are kept updated as the law moves.

Old vs New Tax Regime: Which One Should You Choose in FY 2026-27

Picking a tax regime isn't about which one sounds better, it's arithmetic. Here's the real break-even point by income level, so you choose correctly for tax year 2026-27.

Income Tax Surcharge and Cess Explained: Rates and Marginal Relief

Surcharge is a tax on your tax, not your income, and it only bites above ₹50 lakh. Here's exactly how the slabs, marginal relief, and 4% cess actually work.

Capital Gains Tax Explained: Property, Shares, and Other Assets

Sell property, shares, or gold, and the tax rules genuinely differ. A clear walkthrough of holding periods, LTCG and STCG rates, and exemptions for each.

Forms involved

ITR-1 ITR-2

Related sections

80C Deduction for Specified Investments and PaymentsSection 80C is the best-known deduction in Indian tax law, allowing a capped amount of specified investments and payments to be subtracted from taxable income under the old regime.

Primary sources

Disclaimer

This page explains what a statutory provision does in general terms. It is not a substitute for the bare act, and it is not professional tax or legal advice. Rates, thresholds, and limits change with each Finance Act, and applicability turns on facts specific to you. Confirm anything that affects a real filing with a qualified Chartered Accountant.

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