Section 87A Rebate: Section 87A of the Income Tax Act plays an important role in providing relief to individual taxpayers, especially those in the low and middle-income brackets. Over the years, this rebate provision has gone through multiple changes, reflecting the government’s effort to reduce the tax burden and simplify compliance. One of the most discussed milestones in its journey was when the rebate amount was raised to ₹5,000. Since then, the relief under Section 87A has expanded significantly.
This article explains how Section 87A started, when the ₹5,000 rebate came into effect, how it evolved over time, and what level of tax relief is currently available.
What Section 87A Rebate Means
Section 87A allows resident individual taxpayers to reduce their income tax liability by claiming a rebate, provided their total taxable income stays within a prescribed limit. Unlike deductions, which reduce taxable income, a rebate directly reduces the tax payable. This means that for eligible taxpayers, the final tax liability can be reduced substantially or even become zero.
The provision was introduced with the objective of easing the tax burden on individuals with relatively lower incomes and ensuring that small taxpayers are not overburdened by income tax.
Early Introduction of Section 87A
When Section 87A was first introduced, the rebate amount was quite small and applied only to a limited income group. At that stage, the intent was mainly symbolic, offering some relief but not enough to eliminate tax liability completely for most taxpayers.
As income levels rose and inflation increased, there was growing demand to enhance this rebate so that it could deliver meaningful benefits. This led to periodic revisions in both the rebate amount and the income eligibility limit.
When the Rebate Was Raised to ₹5,000
A major point in the Section 87A timeline came when the rebate was increased to ₹5,000. At the time, this was considered a significant improvement and provided noticeable relief to eligible taxpayers.
Under this structure, resident individuals whose total taxable income did not exceed the specified limit could claim a rebate of up to ₹5,000 against their tax payable. For many small taxpayers, this meant a meaningful reduction in tax liability, though it did not always eliminate tax entirely.
This change helped bring more fairness into the tax system by adjusting relief levels in line with economic realities. However, as income thresholds continued to rise, the ₹5,000 rebate eventually became insufficient, paving the way for further enhancements.
Evolution After the ₹5,000 Rebate
After the ₹5,000 rebate phase, Section 87A continued to evolve. The government increased both the rebate amount and the income ceiling in later budgets to ensure broader coverage.
At one stage, the rebate was raised further, allowing taxpayers with income up to ₹5 lakh to effectively pay zero income tax under the old tax regime. This marked a shift from partial relief to complete tax exemption for a large group of individual taxpayers.
These revisions strengthened the role of Section 87A as a key tax relief provision rather than just a minor adjustment.
Impact of the New Tax Regime
The introduction of the new tax regime brought another major transformation to Section 87A. The new regime aimed to simplify tax calculation by reducing deductions while offering lower slab rates and enhanced rebates.
To make the new system more attractive, the rebate under Section 87A was significantly increased. The income threshold for claiming the rebate was expanded well beyond earlier limits, and the maximum rebate amount was raised sharply.
This shift meant that taxpayers earning much higher incomes than before could still end up paying no tax, provided they opted for the new tax regime and met the eligibility conditions.
Current Relief Available Under Section 87A
Under the latest applicable rules, Section 87A provides different levels of relief depending on the tax regime chosen.
For taxpayers opting for the new tax regime, resident individuals with taxable income up to ₹12 lakh can claim a rebate of up to ₹60,000. If the calculated tax liability falls within this rebate limit, the tax payable becomes zero. This is the highest level of relief Section 87A has ever offered.
For those who continue under the old tax regime, the rebate remains available for taxable income up to ₹5 lakh, with a maximum rebate of ₹12,500. While this relief is smaller compared to the new regime, it still benefits taxpayers who rely heavily on deductions such as house rent allowance, home loan interest, or other exemptions.
In both regimes, the rebate is limited to the amount of tax payable and does not apply to income taxed at special rates.
Why Section 87A Matters Today
The evolution of Section 87A from a modest ₹5,000 rebate to a powerful tax relief tool reflects a broader shift in tax policy. It now plays a central role in reducing the tax burden for middle-income earners and encouraging adoption of a simpler tax structure.
For many taxpayers, understanding how Section 87A works is essential for choosing between the old and new tax regimes and planning their finances effectively.
Conclusion
Section 87A has undergone a remarkable transformation over the years. From the stage when the rebate was raised to ₹5,000 to the current relief of up to ₹60,000 under the new tax regime, the provision has steadily expanded its reach and impact. Today, it stands as one of the most significant tax relief measures for individual taxpayers in India. Knowing its history and current benefits helps taxpayers make informed decisions and maximize their tax savings.