TaxFinancial Glossary
Rebate (Tax)
Definition
A direct reduction in tax payable (not taxable income). Under Section 87A, individuals with taxable income up to Rs 5 lakh (old regime) or Rs 12 lakh (new regime for FY 2025-26) receive a rebate that effectively makes their tax liability zero. Rebate is applied after calculating tax but before adding cess.
Why It Matters
The enhanced Section 87A rebate in the new regime means individuals earning up to Rs 12.75 lakh (after standard deduction) pay zero tax. This single change has made the new tax regime the default winner for a large segment of Indian taxpayers. Always calculate your tax under both regimes before deciding.