Section 156 Income Tax Act 2025 - Tax Rebate Explained

After the introduction of the Income Tax Act 2025, almost all  sections  have been renumbered one of which is section 87A of the Income Tax Act 1961, now replaced with section 156 of the Income Tax Act 2025 which states Income Tax rebate for individuals If you have heard that income up to rupees 12 lakhs is tax-free, Section 156 is exactly what makes is possible. 

What is section 156 of the Income Tax Act 2025 ?

Section 156 of the Income Tax Act 2025 states Rebate of Income Tax in case of certain individuals. 

The provision allows eligible resident individuals to reduce their final income tax liability, most of the times all the way to zero which is based on how much they earn and which tax regime they are filing 

Section 156 has three broad sections:

1. Section 156 (1)- Rebate for individuals as per the old/normal tax regime with income up to 5 lakhs.
2. Section 156(2)- Rebate for individuals under the new tax regime (section 202) with income up-to 12 lakhs, plus marginal relief for income slightly above 12 lakhs
3. Section 156(3)- The deduction as per sub-section (2), shall not exceed income-tax payable as per the rates mentioned under section 202 (1).

Section 156 of the Income Tax 2025 Vs Section 87 of the Income Tax Act 1961

Who is eligible for the Rebate as per Section 156 ?

The rebate as mentioned under section 156 is available only to a specific category to taxpayers, with some conditions which are mentioned as below:

1. Resident Individual only- The rebate applies only to those individuals who qualify as resident in India for the tax year. Non-resident Indians (NRI’s )are not eligible.
2. Individual- Only individuals are eligible to get this rebate and not HUF’s, companies, LLP, Partnership firms and associates.
3. Total income within the specified threshold. As per the old regime income must not exceed rupees 5,00,000. As per the new regime (section 202), the total income must not exceed up to rupees 12,00,000 for full rebate. Marginal relief may apply if income is between 12 lakhs and 12.75 lakhs. 
4. Rebate does not apply on Income which is taxed at special rate: if you have long term capital gains as per section 112A, the rebate does not apply to that income, even if your total income is within the limit. 

With a standard deduction of 75,000 INR, even  a gross salary of 12,75,000 INR may result in taxable income of 12,00,000 INR which makes you eligible for the full rebate as per section 156(2)(a). 

Marginal relief ensures that if your income slightly exceeds 12 Lakhs INR, your tax liability does not increase disproportionately.  Instead of paying full tax as per slab rates, your tax is restricted to the amount by which your income exceeds 12 Lakhs INR. This benefit would be applicable only within a limited income range and prevents unfair tax jumps. However, the relief cannot reduce your tax below zero or create a refund. 

 Illustration 

What are the Income Types excluded from the Rules ?

The rebate as per section 156 does not apply to all types of income. Even

 if total income falls within the eligible limit, the following income types are excluded 

1. Long term Capital Gains on equity shares/ equity mutual funds taxed as per Section 112A of the 1961 Act
2. Short term Capital Gains taxed at special flat rates.
3. Any other income which is taxed at special rates. For examples lottery, winnings, horse racing income.

Even though total income is 12 Lakhs INR, the rebate applies only to the 10 Lakhs INR salary, and tax is till payable on the 2 Lakhs long-term capital gains 

 Illustration 

Numerous tax payers assume that as long as the total income is 12 Lakhs INR they would  pay zero or no tax. This is true, only if none of that income is taxed at special rates. 

Are NRIs, HUF or Companies eligible for Rebate ?