Section 156 Income Tax Act 2025 - Tax Rebate Explained

Section 156 of the Income Tax Act 2025 deals with rebate. Similarly, under section 87A of the Income Tax Act 1961, rebate can be claimed when the total taxable income of the resident assessee does not exceed ₹12 lakhs under the new regime and ₹5 lakhs under the old regime, respectively. It is not available for income chargeable at special rates.

What is Rebate under Section 156 of the Income Tax Act, 2025?

• Rebate is a beneficial provision covered under Section 156 of the Income Tax Act, 2025. It applies when the income, after applying all eligible deductions, falls within the applicable threshold limits. 
• Under the old tax regime, eligible assessees can claim rebate up to ₹12,500 when their total taxable income is within ₹5 lakh.
• Similarly, under the old regime, ₹60,000 of rebate is allowed for eligible assessees, with an income limit of ₹12 lakh. 
• While the marginal relief on rebate is allowed under the new regime, this benefit is not available under the old regime. 

Who Can Claim Rebate?

• Only individual assessees are eligible to claim rebate under section 156 of the Income Tax Act, 2025.
• Assessees who are residents for the relevant assessment year can claim the rebate. Non-residents and other assessees like HUF, partnership firms, and companies are not eligible for the rebate.

Conditions to Claim Rebate

• Rebate is available for total taxable income, calculated after deducting all the eligible exemptions and deductions.
• It can be claimed against the tax liability calculated as per the applicable slab rates. Rebate is not available under income chargeable under special rates. For example, long-term capital gains under section 198 (listed equity shares and equity funds) and crypto assets taxed at 30%.
• Only resident and individual assessees are eligible to claim the rebate. That being said, both resident-ordinarily residents and resident but not ordinarily residents are eligible to claim the rebate.
• Even if the total taxable income slightly exceeds the threshold limit of ₹5 lakhs, rebate is not available under the old regime. However, marginal relief on rebate allows slight flexibility to claim rebate under the new tax regime.
• Rebate is calculated before considering cess.

Marginal Relief on Rebate

• Though the concept of marginal relief on surcharge has existed for a long time, marginal relief on rebate is a comparatively recent amendment. It is available exclusively to the new regime assessees. 
• When the total taxable income under the new regime slightly exceeds ₹12 lakh, marginal relief applicability can be checked
• When the increase in the total tax liability exceeds the increase in the total taxable income, the difference between the two can be claimed as marginal relief.

Illustration

Let us understand the concept of rebate with the following illustrations.

Example-1

Mr A has earned the following income during the financial year 2026-27. 

Salary  - ₹10 lakhs

Long Term Capital Gains - ₹2 lakh

Interest income - ₹ 50,000

Freelance Income - ₹75,000

The following table shows the taxation of the aforementioned income under the new tax regime, as it is more beneficial in this case.

Note: Since rebate is not applicable for the income chargeable under special rates, capital gain income here is still taxable, even if the total taxable income falls within the applicable threshold limits.

Example-2

Mr X, a salaried employee, has the following income during the financial year 2026-27

Salary - ₹12,00,000

Interest Income - ₹1,00,000

In this case, the marginal relief on rebate is applicable, which is calculated under the new regime as follows.

Rebate - Old v/s New Regime

The following table shows the differences between the old and the new tax regime in the context of rebate.

Rebate: Income Tax Act 2025 v/s Income Tax Act 1961

Broadly, the basic provisions related to eligibility, threshold limits, and conditions to be satisfied for claiming the rebate largely remain unchanged under the new Act. However, section references and minor changes in the wording might be observed.

Rebate for NRIs and HUF

• As already explained, rebate under section 156 is available only for the assessees falling under the ‘resident’ category. Therefore, rebate is not applicable for non-residents.
• As per the provisions of section 156 of the Income Tax Act, 2025, rebate is applicable only for individuals. Any assessee other than an individual, like HUF, firm, trusts, is not eligible for rebate.

Final Word

 Rebate is one of the few tax benefits available under the Act, under both regimes, irrespective of whether corresponding tax-saving investments have been made or not. The income tax portal automatically allows rebate on satisfaction of conditions prescribed.