Definition
Rebate under Section 87A
Section 87A gives a tax rebate to resident individuals with income below a specified limit, effectively making their tax liability nil up to that point.
The Section 87A rebate reduces the tax payable to zero for resident individuals whose total taxable income is at or below a notified threshold. The rebate amount and the income limit differ between the old and new regimes, with the new regime offering a higher zero-tax threshold in recent budgets.
It is a rebate on the tax, applied after computing tax on income but before adding cess. If your income exceeds the limit even slightly, the rebate can be lost, though marginal relief cushions incomes just above the new-regime threshold.
Because the new regime's rebate threshold is generous, many lower- and middle-income earners now pay no income tax under it without needing any deductions.
Related terms
- Income Tax SlabIncome tax slabs are the income bands at which progressively higher tax rates apply, so higher earnings are taxed at higher rates.
- Old vs New Tax RegimeIndia offers two personal income-tax regimes: the old one with various deductions and exemptions, and the new one with lower slab rates but most exemptions removed.
- Marginal ReliefMarginal relief limits the extra tax (including surcharge) so that a small rise in income just past a threshold does not increase total tax by more than the additional income itself.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.