With the income tax return filing deadline drawing steadily closer, taxpayers are weighing their options between the old and new tax regimes, each looking for ways to reduce their liability. Whatever regime a person chooses, there is a provision in the Income Tax Act that benefits both categories of filers equally. Section 87A is a rebate that fully cancels the tax on income below a specified ceiling, meaning eligible taxpayers walk away owing nothing at all.
What Is Section 87A and How Does It Work?
Section 87A is a rebate provision, not a standard deduction. Income tax is computed in the normal way, and then, if annual earnings fall within the prescribed limit, the entire calculated amount is written off. The taxpayer owes zero. Under the old tax regime, this benefit is delivered directly through Section 87A. The new tax regime provides the same relief through an updated version of the provision called Section 115BAC(1A). The underlying logic is identical in both; only the income threshold at which the rebate kicks in is different.
Old Regime: Full Rebate on Annual Income Up to Rs 5 Lakh
For taxpayers under the old regime, Section 87A provides a complete rebate on annual income up to Rs 5 lakh. The tax calculated on that income comes to Rs 12,500, and the government waives the entire sum. A taxpayer earning Rs 5 lakh or less per year under the old regime pays absolutely no income tax.
There is one sharp condition attached that every taxpayer near this boundary must understand. The moment income crosses Rs 5 lakh by even a single rupee, the rebate vanishes entirely. Tax then applies to the full income from the ground up, with no partial credit or graduated reduction. There is no gentle phase-out: the shift from zero tax to full tax happens in one step the instant the threshold is breached.
New Regime: Rs 60,000 Tax Waiver on Annual Income Up to Rs 12 Lakh
The new tax regime takes this relief considerably further. Under Section 115BAC(1A), the government has extended the full rebate to annual incomes up to Rs 12 lakh. The tax computed on this level of earnings amounts to approximately Rs 60,000, and every rupee of it is cancelled. A taxpayer earning up to Rs 12 lakh under the new regime carries a net tax bill of zero.
The same strict all-or-nothing cut-off applies here as well. If income exceeds Rs 12 lakh by any amount, the rebate is forfeited entirely and the full income becomes taxable. What would have been a zero-tax year turns into a full-liability year the moment that ceiling is crossed, which makes careful tracking of total taxable income essential for anyone near this limit.
No Forms, No Documents: The Portal Applies the Rebate Automatically
Claiming this rebate demands nothing beyond filing your return in the normal way. There are no additional documents to attach, no certificates to gather, and no separate applications to submit. As soon as a taxpayer enters their total income and selects their regime on the ITR portal, the system automatically runs the tax calculation and applies the applicable rebate. If the income qualifies, the payable tax drops to zero entirely through the standard filing process itself, with no extra effort required from the filer.
