Section 87A Rebate

Tax & Deductions

Section 87A provides a full tax rebate for individuals with income up to Rs 7 lakh (new regime) or Rs 5 lakh (old regime). This means zero income tax is payable up to these income levels despite the positive tax calculated from slabs.

In detail

87A rebate amounts:nNew regime: Full tax rebate up to Rs 25,000 for income up to Rs 7L. Zero tax if income <= Rs 7L.nOld regime: Full tax rebate up to Rs 12,500 for income up to Rs 5L.nnCritical note: 87A rebate is NOT available on:nSpecial rate incomes: STCG from equity (15%), LTCG from equity (12.5%)nFor these, tax is calculated separately and paid even if total income is below Rs 7L.nnEffective since Budget 2023, this makes new regime very attractive for income up to Rs 7L -- zero tax.

Formula

Effective tax = Calculated income tax - 87A rebate (if income within threshold)nAt Rs 7L income (new regime after Rs 75K standard deduction = Rs 6.25L taxable): Tax = Rs 25,000, 87A rebate = Rs 25,000. Net tax = zero.

Real-life example

🇮🇳 India example

Sunita earns Rs 7L salary (new regime). After Rs 75K standard deduction: Rs 6.25L taxable. Tax as per slabs: Rs 25,000. Section 87A rebate: Rs 25,000. Net tax payable: ZERO. She saves the full Rs 25,000 she would otherwise pay.

Frequently asked questions

If I earn Rs 7.1L, do I lose the full rebate? ▼
Yes -- the rebate is a cliff, not a taper. At Rs 7L: zero tax. At Rs 7.01L: no rebate, tax on Rs 7.01L (after std deduction). Marginal relief is available in the old regime (not in new regime for 87A). Plan income carefully near the Rs 7L threshold.