Standard Deduction and Tax Rebate 2026-27: Section 156 vs 87A

Many salaried employees are surprised when a calculator shows income tax as zero even though slab tax is greater than zero. This usually happens because of the combination of standard deduction and Section 87A rebate under the new tax regime.

You can test the same flow with your CTC in the India CTC to In-Hand Salary Calculator, which shows standard deduction, rebate, cess, and final tax separately.

Before entering salary figures, check Tax Year 2026-27 versus FY 2025-26 / AY 2026-27. The same year number can refer to different income periods.

What is standard deduction?

Standard deduction is a flat deduction from salary income. It reduces taxable income before slab tax is calculated.

For Tax Year 2026-27, the new tax regime standard deduction for salaried individuals is Rs 75,000. This reduces taxable salary; it is not a separate deduction from take-home pay.

That means:

• Gross salary: Rs 12,50,000
• Less standard deduction: Rs 75,000
• Taxable income: Rs 11,75,000

The calculator applies this before calculating slab tax.

What is Section 87A rebate?

Section 87A rebate reduces tax payable when taxable income is within the eligible limit.

Under the new tax regime, salaried employees can effectively have no income tax up to Rs 12.75 lakh gross salary income because Rs 75,000 standard deduction can bring taxable income to Rs 12 lakh.

This is why a user may see:

• Slab tax before rebate: greater than zero
• Section 87A rebate: offsets the slab tax
• Tax after rebate: Rs 0
• 4% cess: Rs 0
• Final income tax: Rs 0

Example at Rs 12 LPA CTC

The exact answer depends on salary structure, but a common flow is:

• CTC includes employer PF and gratuity
• Gross salary is lower than CTC
• Standard deduction reduces taxable income
• If taxable income stays within the rebate limit, final income tax becomes zero

Income tax is not zero because slabs do not apply. It becomes zero because the rebate cancels the calculated slab tax.

Why cess can be zero

Cess is calculated after rebate. If Section 87A rebate reduces tax after rebate to zero, then 4% cess is also zero.

That is why the calculator now shows:

• Slab tax before rebate
• Less: Section 87A rebate
• Tax after rebate
• Add: 4% cess
• Final income tax

This makes the tax calculation easier to trust.

Old regime is different

Marginal relief and higher incomes

For ordinary salary income under the new regime, marginal relief prevents an abrupt tax jump immediately above Rs 12 lakh taxable income. At Rs 12,00,100 taxable income, tax after relief is Rs 100 before 4% cess, or Rs 104 including cess. The threshold refers to taxable income, not CTC. Special-rate income and residency can affect eligibility.

At higher taxable incomes, surcharge may apply in addition to slab tax. Surcharge marginal relief limits the increase near applicable thresholds; cess is calculated after surcharge and relief.

The Income-tax Act, 2025 uses Tax Year 2026-27 for income earned from April 2026. FY 2025-26 returns remain associated with AY 2026-27 under the earlier Act. The current resident-individual rebate is section 156; the new regime is section 202 and salary deductions are in section 19. References to Section 87A in this guide describe the familiar earlier-law terminology, not the current Act's section number.

Reviewed 27 October 2026 against the official Income-tax Act, 2025. Standard deduction is capped at actual salary. It is not reduced merely because employment lasts fewer than 12 months; income tax must be recomputed on total annual income, including other employers where applicable.

Sources: Income Tax Department rates and computation, salary deductions, and new Act transition guidance.

Comparing regimes

The old regime has different slab limits and deduction rules. It can still be useful if you have large deductions such as HRA exemption, 80C, NPS, home loan interest, or health insurance.

Always compare both regimes before making a tax declaration.

If HRA is one of your main old-regime deductions, estimate it first with the HRA Exemption Calculator.