Rebate of Income-tax (87A FA2025)

Section 156 — - REBATE OF INCOME-TAX IN CASE OF CERTAIN INDIVIDUALS

Section 156 is the substantive equivalent of 1961 s. 87A -- the resident-individual income-tax rebate. The provision has been progressively enhanced: started at INR 2,000 (FA 2013), expanded to INR 12,500 (FA 2019 for income up to INR 5L), and substantially expanded under the new-regime u/s 202(1) by FA 2025 to INR 60,000 for income up to INR 12L plus MARGINAL RELIEF for income just above INR 12L. The architecture distinguishes OLD-REGIME claim (sub-s. 1: INR 12,500 / income <= INR 5L) from NEW-REGIME claim under s. 202(1) (sub-s. 2: INR 60,000 / income <= INR 12L PLUS marginal-relief slope). The marginal-relief mechanism prevents the cliff-edge between rebate-eligible and non-rebate-eligible income.

STATUTORY ARCHITECTURE -- TWO REGIMES

TWO PARALLEL REBATES: (i) OLD-REGIME (sub-s. 1): for resident individuals whose total income <= INR 5,00,000 -- rebate of 100% income-tax payable OR INR 12,500, whichever is less. So the maximum tax payable (before rebate) at INR 5L is INR 12,500 (5%-slab on the INR 2.5L-5L band) and rebate fully neutralises. Total income above INR 5L gets ZERO rebate (cliff edge -- old regime). (ii) NEW-REGIME (sub-s. 2): for resident individual chargeable under s. 202(1) -- the new-regime simplified-rate regime (post-FA 2023 default; FA 2025 enhanced thresholds): (a) Income <= INR 12L: rebate of 100% income-tax payable OR INR 60,000, whichever is less. The INR 60,000 corresponds to the tax payable on INR 12L under the FA 2025 new-regime slabs (where 0-INR 4L = NIL; INR 4L-8L = 5%; INR 8L-12L = 10% -- effective tax INR 60K at INR 12L). (b) MARGINAL RELIEF: where income exceeds INR 12L AND tax payable exceeds the INCREMENT in income above INR 12L, rebate = the excess. So for income INR 12,10,000 with tax payable INR 65,500, the excess of tax-payable over increment (INR 65,500 - INR 10,000 = INR 55,500) is the rebate -- effectively capping ADDITIONAL TAX from crossing INR 12L at the incremental-income-amount. This converts the cliff-edge into a smooth slope between INR 12L and approximately INR 12.75L.

WORKED EXAMPLES (FA 2025 NEW-REGIME)

Example 1: Income INR 11,99,000; Tax = INR 59,400 (5% × 4L + 10% × 3.99L); Rebate = INR 59,400 (100% rebated); Net tax = NIL. Example 2: Income INR 12,00,000; Tax = INR 60,000; Rebate = INR 60,000; Net tax = NIL. Example 3: Income INR 12,10,000; Tax = INR 65,500 (15% on INR 2.10L over INR 10L; 10% INR 4L 8L=40K + 5% 4L=20K + 15% × 0.10L = 1.5K above INR 12L = INR 61,500 -- approximation; exact slabs may need calibration). Excess of tax-payable over (INR 12.10L - INR 12L = INR 10K) = INR 65,500 - INR 10,000 = INR 55,500 rebate. Net tax = INR 65,500 - 55,500 = INR 10,000. So the additional INR 10K income created INR 10K incremental tax (perfectly proportional). Example 4: Income INR 12,75,000 (approximate marginal-relief sunset); Tax = INR 75K (assumed); excess over (INR 12.75L - INR 12L = INR 75K) = INR 75K - INR 75K = ZERO. Rebate = ZERO. Net tax = INR 75K. So MARGINAL RELIEF SLOPE: between INR 12L and INR 12.75L (approximate), rebate gradually phases out -- ensuring no taxpayer pays MORE tax in absolute terms than their income increment over INR 12L. Above INR 12.75L, full slab tax applies without rebate.

ELIGIBILITY -- RESIDENT-INDIVIDUAL ONLY

Section 156 is available ONLY to RESIDENT INDIVIDUAL. Non-resident individuals, HUF, firms, companies, AOP, BOI -- NOT eligible. The rebate is intended as relief to small-and-middle-income resident individuals; Indian-resident-NRIs get only the s. 156 rebate if they qualify as resident under s. 6 in the relevant year. Senior citizen status does NOT independently qualify -- but the income / tax thresholds combined with senior-citizen-slab interaction may leave senior citizens better off in old regime in some scenarios.

OLD vs NEW REGIME DECISION FRAMEWORK

FA 2023 made new-regime DEFAULT for individuals; old-regime requires explicit opt-out (Form 10-IEA before due date). Decision framework: (i) Income < INR 5L: both regimes give NIL tax (old via s. 156(1) rebate; new via slab + s. 156(2) rebate). (ii) INR 5L-12L: NEW REGIME WINS -- new rebate INR 60K covers tax up to INR 12L; old regime allows only INR 12.5K rebate up to INR 5L. (iii) INR 12L-12.75L: new regime with marginal relief; old regime calculation needed for comparison; usually new wins. (iv) > INR 12.75L: depends on Chapter VIII deduction availability (s. 124 NPS, s. 127 disabled-dependant, s. 128 specified disease, s. 129-135 loan interest / EV / 80G / rent, s. 153 interest deduction, s. 154 self-disability, etc.). For high-deduction taxpayers (>INR 4L Chapter VIII deductions), OLD REGIME often optimal. Practitioner: model BOTH regimes for every individual return; cross-check with default-vs-opt-out implications post FA 2023 default-shift.

CASE LAW / DEPARTMENTAL

(i) FA 2025 Memorandum -- intent of marginal relief explained; codified in s. 156(2)(b). (ii) CBDT Press Release dated Feb 2025 -- worked examples on enhanced rebate. (iii) Pre-FA 2025: s. 87A pre-FA 2023 INR 12,500 / income up to INR 5L was the ceiling; FA 2023 introduced INR 25,000 / income up to INR 7L for new regime; FA 2025 progressively expanded to INR 60,000 / INR 12L. (iv) Pacific Industries Ltd v. CIT (ITAT) -- rebate ceiling at pre-rebate income-tax confirmed; no negative-tax.

PLANNING NOTES

(i) NEW REGIME DEFAULT -- post-FA 2023, individuals are AUTOMATICALLY in new regime; Form 10-IEA opt-out before s. 263(1) due date required for old regime. (ii) MARGINAL RELIEF MAXIMISATION -- for individuals with INCOME between INR 12L and INR 12.75L, the marginal relief slope means SMALL income increments cost full incremental tax, but never MORE than incremental amount. Plan year-end income realisation accordingly. (iii) DEDUCTION-HEAVY INDIVIDUALS -- compute old-regime tax + s. 156(1) rebate INR 12.5K vs new-regime tax + s. 156(2) rebate INR 60K; choose lower. (iv) SENIOR CITIZEN PLANNING -- senior-citizen old-regime slab (INR 3L exemption + INR 50K s. 153 deposit deduction) can compete with new-regime; model carefully. (v) NRI RETURNED -- NRI returning to India in middle of year may qualify as RESIDENT in that year and become eligible for s. 156; verify s. 6 residence at year-end.

CROSS-REFERENCES

• Section 155 -- Rebate framework.
• Section 6 -- Residence (eligibility).
• Section 122 -- GTI / total income definition.
• Section 153 / 154 / Chapter VIII -- deductions (interaction with regime choice).
• Section 202(1) -- New-regime simplified rates.
• Section 263(1) -- Return-filing due date.
• Form 10-IEA -- new-regime opt-out (FA 2023).
• ITR Schedule TTI -- Tax computation.