While computing taxable income each year, taxpayers must understand the difference between two key relief mechanisms under the Income Tax Act—rebate under Section 87A and standard deduction under Section 16(ia)—as they operate differently and impact tax liability in distinct ways. A rebate is a direct reduction from tax payable and is available only to resident individuals whose income does not exceed the prescribed limit; it does not reduce taxable income, rather it reduces tax after calculation but before cess. Under the New Tax Regime (u/s 115BAC), a rebate of up to ₹60,000 is available when income does not exceed ₹12 lakh, effectively making tax liability zero up to that level, whereas under the Old Regime, the rebate is capped at ₹12,500 for income up to ₹5 lakh. This relief is not available to HUFs, firms, companies, or NRIs. In contrast, the standard deduction is a flat deduction allowed from salary income (and taxable pension), reducing taxable income directly without documentation, and is available to salaried taxpayers and pensioners under both regimes. The deduction stands at ₹75,000 under the new regime and ₹50,000 under the old regime. Individuals with business income or non-salary sources cannot claim it. The standard deduction provides universal relief to salaried taxpayers, while the rebate aims to eliminate tax for low-income resident individuals. Under the new regime, the combined effect of the standard deduction and rebate ensures zero tax liability up to ₹12 lakh, highlighting their complementary but distinct roles in personal tax planning.
1. Rebate under Section 87A of Income Tax Act, 1961
Meaning
A rebate is a direct reduction from the tax payable, available only to resident individuals whose total income does not exceed the specified threshold.
It does NOT reduce taxable income; it reduces the tax liability after calculating tax.
Latest Rebate Amounts
The rebate differs under the New Tax Regime and Old Tax Regime.
(A) New Tax Regime (default regime u/s 115BAC)(Budget 2025)
- Available if total income ≤ ₹12,00,000
- Maximum rebate = ₹60,000
- Effectively, no tax is payable up to ₹12 lakh income.
The enhanced rebate mechanism ensures the tax on income up to ₹12 lakh becomes zero.
(B) Old Tax Regime
- Available if total income ≤ ₹5,00,000
- Maximum rebate = ₹12,500
- Effectively, no tax payable up to ₹5 lakh income.
Key Features
- Available only to resident individuals.
- Rebate applies after tax calculation, before adding cess.
- Rebate is not available to HUFs, firms, companies, or NRIs.
Purpose
To provide relief to small taxpayers by eliminating tax liability up to a prescribed income level.
2. Standard Deduction (Section 16(ia))
Meaning
Standard deduction is a flat, fixed deduction allowed from salary income (and pension where taxable as salary).
It reduces the taxable income, not the tax liability directly.
Latest Standard Deduction Amount
- ₹75,000 per year under New Tax Regime and ₹50,000 per year under Old Tax Regime
(Available under BOTH old and new tax regimes)
Who can claim?
- Salaried individuals
- Pensioners (where pension is taxed as salary)
Who cannot claim?
- Income from business or profession
- Non-salary income categories
Purpose
To give universal relief to salaried taxpayers for routine work-related expenses without requiring bills/documentation.
Conclusion
-
Standard Deduction benefits all salaried individuals regardless of income level.
-
Rebate benefits only resident individuals below a specific taxable income threshold.
-
Standard deduction reduces income, while rebate reduces tax.
-
Under the new regime, the combination of standard deduction and rebate ensures zero tax up to ₹12 lakh income.
Author Bio
