The Section 87A rebate is a tax concession for lower-income resident individuals. If your total income is within a set threshold, the rebate reduces your tax liability, often to zero, before cess is added. It is not an exemption on income; it is a direct cut to the tax itself.

How it works

You compute tax on your total income as normal. If your income is at or below the 87A threshold, you get a rebate equal to the tax payable, capped at a maximum amount. The result is nil tax up to the threshold and normal tax above it. The threshold and the cap are different for the two regimes, and the new regime threshold has been raised several times, so treat any specific figure as year-dependent and confirm it against the current Finance Act.

As a reference point, the old regime has offered a rebate up to Rs 12,500 for total income up to Rs 5,00,000. The new regime threshold has been considerably higher in recent years, which is what makes it possible for many salaried people to pay no tax under it despite a healthy salary.

Marginal relief

Just above the threshold, a small increase in income could otherwise trigger tax far larger than the extra income. Marginal relief in the new regime limits the tax so that it does not exceed the income earned beyond the threshold. It smooths the cliff edge.

Frequently asked questions

Who can claim the 87A rebate?

Resident individuals only. It is not available to non-residents, HUFs, firms or companies.

Does the rebate apply before or after cess?

Before. The rebate reduces the basic tax; the 4% cess is then charged on whatever tax remains.

If my income is Rs 1 above the threshold, do I lose the whole rebate?

Under the strict rule, yes, but marginal relief in the new regime prevents the tax from jumping by more than the excess income.

See whether the rebate zeroes out your tax with the Income Tax Calculator, and compare the two regimes at your income level in the same tool.