A rebate is a reduction of the tax you would otherwise pay. It is not a reduction of your salary, and it is not a refund you apply for on a separate form. On an Indian return the rebate people mean is section 156 of the Income-tax Act, 2025. Until 31 March 2026 it was section 87A.
Keep it apart from a deduction. The standard deduction and section 123 come off the income. The slabs then produce a tax. The rebate comes off that tax. If the rebate equals the tax, you pay no slab tax. Cess is worked out after the rebate, so cess on a wiped tax is zero too. Cess on a tax that was only reduced is 4% of whatever tax is left.
There are two versions, and they do not behave the same way near the line.
In the old regime, section 156(1) applies when total income is not more than ₹5,00,000. The rebate is the tax or ₹12,500, whichever is less. Cross the line by one rupee and the whole rebate disappears. There is no taper.
In the new regime, section 156(2) applies when tax is charged under section 202(1). Up to ₹12,00,000 of total income, the rebate is the tax or ₹60,000, whichever is less. Just above ₹12,00,000, marginal relief stops the tax, before cess, from exceeding the income that went over the line.
The rebate does not touch tax under sections 196, 197 or 198. A share sale can still be taxed when your salary rebate is complete.
A worked example
New regime, salary ₹12,75,000. After the ₹75,000 standard deduction, income is ₹12,00,000. The rebate is ₹60,000. Cess is ₹0. The bill is ₹0.
New regime, salary ₹13,00,000. Income is ₹12,25,000. Relief is ₹38,750. Tax before cess is ₹25,000, which matches the income above ₹12,00,000. Cess is ₹1,000. The bill is ₹26,000. The relief did not cover the cess. The memorandum says it does not.
Old regime, salary ₹5,50,000 pays ₹0. Salary ₹5,50,001 pays ₹13,000. That jump is the missing marginal relief. See it on the income tax calculator. The slab guide puts the line next to the bands.
Mistakes people make
- Subtracting ₹12,00,000 from salary and taxing only the rest. The rebate works on the tax, after the slabs.
- Using the new-regime relief in the old regime.
- Claiming it as a non-resident.
- Assuming “no tax up to ₹12 lakh” covers a long-term gain on shares. It covers slab tax.
- Forgetting cess on a marginal-relief case. The bill in the example is ₹26,000, not ₹25,000.
The section
Section 156 (this was section 87A). The new-regime version, including marginal relief, is section 156(2) and only applies where section 202(1) charges the tax.
Questions
Is a rebate the same as a deduction?
No. A deduction, such as the standard deduction or section 123, reduces income before the slabs. A rebate reduces the tax after the slabs. Section 156 takes ₹60,000 off the tax when salary of ₹12,75,000 has already become income of ₹12,00,000.
Who can claim the section 156 rebate?
A resident individual. A non-resident does not get it. A Hindu undivided family does not get this particular rebate. The income tax calculator asks whether you are resident for that reason.
Does marginal relief apply to every rebate?
Only to section 156(2), the new regime, just above ₹12,00,000. The old-regime rebate has no marginal relief. Salary of ₹5,50,001 pays ₹13,000 because the line was crossed.
Sources
Figures checked 28 Oct 2026.