Definition
Section 87A Rebate in New Regime
Under the new tax regime, the Section 87A rebate raises the income level at which an individual pays zero income tax.
The new tax regime offers a more generous Section 87A rebate, lifting the income threshold up to which a resident individual's tax liability becomes nil. This is a major reason the new regime appeals to lower- and middle-income earners who claim few deductions.
Because of this rebate plus the standard deduction available in the new regime, many salaried taxpayers below a certain income now pay no tax at all without investing in 80C instruments. Marginal relief cushions incomes that just exceed the rebate threshold.
When comparing regimes, factor in this enhanced rebate: for many, the new regime's zero-tax band makes it the better choice despite the loss of deductions, while those with heavy deductions may still prefer the old regime.
Related terms
- Standard DeductionThe standard deduction is a flat amount subtracted from salary or pension income without needing any proof of expenses.
- 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.
- Rebate under Section 87ASection 87A gives a tax rebate to resident individuals with income below a specified limit, effectively making their tax liability nil up to that point.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.