Section 87A Rebate and Marginal Relief: Why ₹12,10,000 Does Not Cost ₹61,500

How the rebate works

Section 87A gives a resident individual a rebate against tax payable where total income does not exceed a threshold. In the new regime that threshold is twelve lakh rupees and the maximum rebate sixty thousand. In the old regime the figures are five lakh and twelve thousand five hundred.

Tax on exactly twelve lakh rupees at the new regime slab rates is sixty thousand — twenty thousand at five per cent on the four to eight lakh band, forty thousand at ten per cent on the eight to twelve band. The rebate wipes out exactly that.

The cliff, and the relief

At twelve lakh and ten thousand rupees, slab tax is sixty-one thousand five hundred. Without relief the taxpayer would pay sixty-one thousand five hundred to earn ten thousand more — a marginal rate of over six hundred per cent.

Marginal relief caps the tax at the amount by which income exceeds the threshold. Tax becomes ten thousand plus four per cent cess, so ten thousand four hundred. Relief continues until slab tax falls below the excess, which happens a little above twelve lakh seventy thousand.

The standard deduction on top

For a salaried taxpayer or pensioner, the seventy-five thousand rupee standard deduction comes off before the threshold is tested. Gross salary of twelve lakh seventy-five thousand produces total income of twelve lakh, which is within the rebate.

That is where the widely quoted figure of ₹12,75,000 comes from. It applies to salary income, not to business or capital gains income.

What the rebate does not cover

The rebate applies to tax on income charged at slab rates. Tax on capital gains under Sections 111A, 112 and 112A is excluded, so a taxpayer whose income is largely capital gains cannot rely on the twelve lakh figure.

It is also available only to resident individuals — not to non-residents, firms, or companies.

Frequently asked questions

### Is income up to 12 lakh really tax-free?

In the new regime, yes, for slab income — the Section 87A rebate of sixty thousand rupees exactly cancels the tax on twelve lakh of total income. For salaried taxpayers the standard deduction raises the gross figure to ₹12,75,000.

### What is marginal relief?

A cap ensuring that the tax on income just above the rebate threshold never exceeds the income above that threshold. Without it, earning ten thousand rupees more than twelve lakh would cost sixty-one thousand five hundred in tax.

### Does the rebate apply to capital gains?

No. Section 87A applies to tax on income charged at slab rates. Capital gains taxed at special rates under Sections 111A, 112 and 112A are outside it.