Section 87 is the opening provision of Part A of Chapter VIII (rebate of income-tax). It does not grant a rebate itself. It directs that, in computing the income-tax on the total income of an assessee for an assessment year, there shall be allowed from the amount of income-tax (as computed before the deductions under this Chapter) the deductions specified in sections 87A and 88E, in accordance with and subject to those sections.
Sub-section (2) caps the total of the deductions under s. 87A or s. 88E at the income-tax (as computed before the Chapter VIII deductions) on the total income for that year.
Operative consequences
A Chapter VIII rebate is a deduction from income-tax, not from income, and is worked on the tax figure before any Chapter VIII deduction.
The rebate can reduce that income-tax to nil but cannot exceed it.
Since s. 88E(3) bars any deduction from assessment year 2009-10, the rebate operating through s. 87 for assessment year 2026-27 is the one under s. 87A.
Status
Operative for assessment year 2026-27. The reference in sub-section (1) carries the note "Sub. for 'sections 87A, 88, 88A, 88B, 88C, 88D and 88E' by Act No. 08 of 2023, w.e.f. 1-4-2023", and sub-section (2) a matching note.The Finance Act, 2026 does not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act provision is s. 155. The 2025 Act has no counterpart to s. 88E, so s. 155 refers only to s. 156.
Case Laws & Commentary
Section 87 — Rebate to be Allowed in Computing Income-tax
Part A (Rebate of income-tax) — the machinery/aggregating provision of Chapter VIII
A. SECTION COMMENTARY
A.1 Structural position
Section 87 is the gateway and machinery provision of Chapter VIII. It does not itself confer any rebate; it directs that, in computing the income-tax on the total income of an assessee for any assessment year, there shall be allowed from the amount of income-tax — as computed BEFORE allowing the deductions under this Chapter — the deductions specified in the operative rebate sections, in accordance with and subject to their provisions. Post the Finance Act, 2023 the live cross-reference in section 87(1)/(2) is confined to sections 87A and 88E; the earlier string “sections 87A, 88, 88A, 88B, 88C, 88D and 88E” was substituted because the other rebate sections had been omitted or had spent themselves.
Two operative rules flow from the section. First, sub-section (1) fixes the base: a Chapter VIII rebate is a deduction from tax, not a deduction from income, and is computed on the income-tax figure arrived at before any Chapter VIII rebate is given. Second, sub-section (2) caps the aggregate: the total of the deductions under section 87A or section 88E cannot exceed the income-tax (so computed) on the total income. A rebate can therefore reduce the tax to nil but can never generate a refund of, or a credit beyond, the tax otherwise payable.
A.3 Doctrinal themes
• Rebate vs. deduction vs. exemption: A rebate operates at the tax stage (reducing tax payable); a deduction (e.g. Chapter VIA) operates at the income stage; an exemption (e.g. section 10) keeps the receipt out of total income altogether. Section 87 anchors the first category.
• Meaning of ‘income-tax’: Because the rebate is worked on ‘income-tax as computed’, the settled meaning of ‘income-tax’ matters. The base for the rebate is the income-tax on total income before Chapter VIII; the interaction with surcharge and health & education cess is governed by the charging provisions and the annual Finance Act, not by section 87 itself.
• Subordination to the operative sections: The words ‘in accordance with and subject to the provisions of sections 87A and 88E’ make section 87 entirely derivative — every limitation, eligibility condition and ceiling in 87A/88E is carried into section 87.
A.4 Finance Act amendment trail
• Finance Act, 2023 (w.e.f. 1-4-2023): Substituted the cross-reference in section 87(1) and (2) to read ‘sections 87A and 88E’ (and ‘section 87A or section 88E’), consequential to the omission of section 88 and the spent character of 88A–88D.
• Earlier history: Section 87 has, since 1961, been the umbrella under which the various savings/investment and category rebates (88, 88B, 88C, 88D) and the income-based rebate (87A, from AY 2014-15) operated, before most were withdrawn.
A.5 Practitioner pointers
• Order of computation: Compute tax on total income; apply Chapter VIII rebate (87A/88E) on that pre-Chapter-VIII figure; then add surcharge (if any) and cess. Reversing the order produces a wrong rebate and a wrong cess base.
• No carry-forward / no refund: An unutilised rebate is not refundable and does not carry forward; the cap in sub-section (2) is absolute.
• Litigation rarely on 87 itself: Section 87 is seldom litigated in isolation; disputes crystallise on the component sections — chiefly section 87A (scope against special-rate income) and the now-spent section 88E (STT rebate, including against MAT).
B. FINANCE ACT 2026 — IMPACT NOTE
The Finance Act, 2026 does not amend section 87. The machinery and the ceiling are carried forward unchanged for AY 2026-27. (Verified: the FA 2026 Amendment Tracker contains no Chapter VIII rebate/relief amendment; the principal individual-facing measures for AY 2026-27 are the preservation of the section 115BAC default-regime slab structure and unchanged rates.)
C. CASE LAW
Because section 87 is a pure machinery/aggregating provision, there is little litigation on the section in its own right; the authorities below establish the principles that govern how the rebate base is read. Disputes on the quantum and reach of the rebate itself are collected under sections 87A and 88E.
Cluster 1 — Meaning of ‘income-tax’ on which the rebate base rests
CIT v. K. Srinivasan
(1972) 83 ITR 346 (SC)
Facts — The question was whether the expression ‘income-tax’ in the Finance Act charging language included surcharge, additional surcharge and special surcharge.
Issue — Whether ‘income-tax’ is to be read as comprehending surcharge for the purpose of the charge.
Held — The Supreme Court held that ‘income-tax’ as used in the Finance Acts includes surcharge; surcharge is an increment of income-tax and partakes of its character.
Ratio — The term ‘income-tax’ is read contextually; surcharge is an accretion to income-tax, not a distinct levy.
Relevance — Frames how the ‘income-tax as computed’ base in section 87 interacts with surcharge and informs the order of computation — rebate first on the income-tax component, surcharge/cess thereafter.
Cluster 2 — Rebate operates at the tax stage, subject to the statutory ceiling
The internal logic of section 87(2) — that the aggregate rebate cannot exceed the income-tax computed before Chapter VIII — has been applied without serious dispute. The principle that a rebate reduces tax to nil but cannot become refundable is a direct reading of the sub-section and is reflected in the computation jurisprudence under section 87A (see the companion file) and section 88E (Horizon Capital, infra), where the courts read each rebate strictly within its own ceiling.
Prepared for the bharattax.co treatise. Statutory position verified against the bare Act (income-tax-act-1961-as-amended-by-finance-act-2025.pdf) read with the Finance Act, 2026 (00 Finance Act 2026 Amendment Tracker.xlsx). Only citations verified against public reports/databases are reproduced; where the appellate field is thin this is stated candidly. Commentary is editorial; statutory text is not reproduced verbatim here (see companion Block-1 file).
Function in the statutory architecture
Section 87 is the opening provision of Part A of Chapter VIII (rebate of income-tax). It does not grant a rebate itself. It directs that, in computing the income-tax on the total income of an assessee for an assessment year, there shall be allowed from the amount of income-tax (as computed before the deductions under this Chapter) the deductions specified in sections 87A and 88E, in accordance with and subject to those sections.
Sub-section (2) caps the total of the deductions under s. 87A or s. 88E at the income-tax (as computed before the Chapter VIII deductions) on the total income for that year.
Operative consequences
Status
Operative for assessment year 2026-27. The reference in sub-section (1) carries the note "Sub. for 'sections 87A, 88, 88A, 88B, 88C, 88D and 88E' by Act No. 08 of 2023, w.e.f. 1-4-2023", and sub-section (2) a matching note.The Finance Act, 2026 does not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act provision is s. 155. The 2025 Act has no counterpart to s. 88E, so s. 155 refers only to s. 156.
Case Laws & Commentary
Section 87 — Rebate to be Allowed in Computing Income-tax
Part A (Rebate of income-tax) — the machinery/aggregating provision of Chapter VIII
A. SECTION COMMENTARY
A.1 Structural position
Section 87 is the gateway and machinery provision of Chapter VIII. It does not itself confer any rebate; it directs that, in computing the income-tax on the total income of an assessee for any assessment year, there shall be allowed from the amount of income-tax — as computed BEFORE allowing the deductions under this Chapter — the deductions specified in the operative rebate sections, in accordance with and subject to their provisions. Post the Finance Act, 2023 the live cross-reference in section 87(1)/(2) is confined to sections 87A and 88E; the earlier string “sections 87A, 88, 88A, 88B, 88C, 88D and 88E” was substituted because the other rebate sections had been omitted or had spent themselves.
A.2 What section 87 does mechanically
Two operative rules flow from the section. First, sub-section (1) fixes the base: a Chapter VIII rebate is a deduction from tax, not a deduction from income, and is computed on the income-tax figure arrived at before any Chapter VIII rebate is given. Second, sub-section (2) caps the aggregate: the total of the deductions under section 87A or section 88E cannot exceed the income-tax (so computed) on the total income. A rebate can therefore reduce the tax to nil but can never generate a refund of, or a credit beyond, the tax otherwise payable.
A.3 Doctrinal themes
• Rebate vs. deduction vs. exemption: A rebate operates at the tax stage (reducing tax payable); a deduction (e.g. Chapter VIA) operates at the income stage; an exemption (e.g. section 10) keeps the receipt out of total income altogether. Section 87 anchors the first category.
• Meaning of ‘income-tax’: Because the rebate is worked on ‘income-tax as computed’, the settled meaning of ‘income-tax’ matters. The base for the rebate is the income-tax on total income before Chapter VIII; the interaction with surcharge and health & education cess is governed by the charging provisions and the annual Finance Act, not by section 87 itself.
• Subordination to the operative sections: The words ‘in accordance with and subject to the provisions of sections 87A and 88E’ make section 87 entirely derivative — every limitation, eligibility condition and ceiling in 87A/88E is carried into section 87.
A.4 Finance Act amendment trail
• Finance Act, 2023 (w.e.f. 1-4-2023): Substituted the cross-reference in section 87(1) and (2) to read ‘sections 87A and 88E’ (and ‘section 87A or section 88E’), consequential to the omission of section 88 and the spent character of 88A–88D.
• Earlier history: Section 87 has, since 1961, been the umbrella under which the various savings/investment and category rebates (88, 88B, 88C, 88D) and the income-based rebate (87A, from AY 2014-15) operated, before most were withdrawn.
A.5 Practitioner pointers
• Order of computation: Compute tax on total income; apply Chapter VIII rebate (87A/88E) on that pre-Chapter-VIII figure; then add surcharge (if any) and cess. Reversing the order produces a wrong rebate and a wrong cess base.
• No carry-forward / no refund: An unutilised rebate is not refundable and does not carry forward; the cap in sub-section (2) is absolute.
• Litigation rarely on 87 itself: Section 87 is seldom litigated in isolation; disputes crystallise on the component sections — chiefly section 87A (scope against special-rate income) and the now-spent section 88E (STT rebate, including against MAT).
B. FINANCE ACT 2026 — IMPACT NOTE
The Finance Act, 2026 does not amend section 87. The machinery and the ceiling are carried forward unchanged for AY 2026-27. (Verified: the FA 2026 Amendment Tracker contains no Chapter VIII rebate/relief amendment; the principal individual-facing measures for AY 2026-27 are the preservation of the section 115BAC default-regime slab structure and unchanged rates.)
C. CASE LAW
Because section 87 is a pure machinery/aggregating provision, there is little litigation on the section in its own right; the authorities below establish the principles that govern how the rebate base is read. Disputes on the quantum and reach of the rebate itself are collected under sections 87A and 88E.
Cluster 1 — Meaning of ‘income-tax’ on which the rebate base rests
CIT v. K. Srinivasan
(1972) 83 ITR 346 (SC)
Facts — The question was whether the expression ‘income-tax’ in the Finance Act charging language included surcharge, additional surcharge and special surcharge.
Issue — Whether ‘income-tax’ is to be read as comprehending surcharge for the purpose of the charge.
Held — The Supreme Court held that ‘income-tax’ as used in the Finance Acts includes surcharge; surcharge is an increment of income-tax and partakes of its character.
Ratio — The term ‘income-tax’ is read contextually; surcharge is an accretion to income-tax, not a distinct levy.
Relevance — Frames how the ‘income-tax as computed’ base in section 87 interacts with surcharge and informs the order of computation — rebate first on the income-tax component, surcharge/cess thereafter.
Cluster 2 — Rebate operates at the tax stage, subject to the statutory ceiling
The internal logic of section 87(2) — that the aggregate rebate cannot exceed the income-tax computed before Chapter VIII — has been applied without serious dispute. The principle that a rebate reduces tax to nil but cannot become refundable is a direct reading of the sub-section and is reflected in the computation jurisprudence under section 87A (see the companion file) and section 88E (Horizon Capital, infra), where the courts read each rebate strictly within its own ceiling.
Prepared for the bharattax.co treatise. Statutory position verified against the bare Act (income-tax-act-1961-as-amended-by-finance-act-2025.pdf) read with the Finance Act, 2026 (00 Finance Act 2026 Amendment Tracker.xlsx). Only citations verified against public reports/databases are reproduced; where the appellate field is thin this is stated candidly. Commentary is editorial; statutory text is not reproduced verbatim here (see companion Block-1 file).