What is the Section 87A tax rebate

The 87A rebate is an amount knocked off your computed tax — if your income is within the threshold, the rebate equals your tax, bringing it to zero. It's different from a deduction (which reduces income); the rebate reduces the tax itself, after it's calculated.

In the new regime, the rebate makes tax nil for total income up to Rs 12,00,000, with the rebate worth up to Rs 60,000. For salaried people, the Rs 75,000 standard deduction sits on top, so a salary up to about Rs 12,75,000 can come to zero tax.

In the old regime, the 87A rebate makes tax nil only up to Rs 5,00,000 of total income, worth up to Rs 12,500. This much lower ceiling is one reason the new regime is more attractive for modest incomes.

The widely-quoted "no tax up to Rs 12 lakh" comes entirely from the 87A rebate in the new regime — not from the slabs alone. The slabs would otherwise tax income above Rs 4 lakh; the rebate is what wipes out the resulting tax up to the threshold.

If your income is slightly over the rebate ceiling, marginal relief ensures the extra tax doesn't exceed the extra income, smoothing the jump just past Rs 12,00,000. So crossing the line by a little doesn't create a disproportionate tax bill.