Section 87A rebate and marginal relief, explained

Section 87A is the reason a meaningful chunk of India’s taxpayers pay zero income tax despite slabs that technically start taxing income well below that point. It’s a rebate, not a slab change — and the mechanic just above its threshold is where most of the confusion actually lives.

Two different thresholds, one common mechanic

Both regimes offer a Section 87A rebate, but at very different thresholds: taxable income at or below ₹5,00,000 under the old regime, or ₹12,00,000 under the new regime, owes zero tax — not because the slabs themselves are zero, but because the rebate wipes out whatever slab-wise tax was computed. Under the new regime, someone with exactly ₹12,00,000 of taxable income has a slab-wise tax of ₹60,000 before the rebate — the rebate cancels that ₹60,000 entirely, in full.

The cliff marginal relief exists to solve

The rebate is all-or-nothing at the threshold, which creates an obvious problem just above it: without any adjustment, earning even ₹1 more than the threshold would mean losing the entire rebate and owing full slab-wise tax on the whole income — a tax bill that could dwarf the extra rupee actually earned. Marginal relief exists specifically to prevent that: just above the threshold, tax is capped at no more than the amount of income that crossed it.

Notice that the 4% cess is applied afterthe relief cap, not before — so the relief itself guarantees the pre-cess tax never exceeds the excess income, but the cess on top of that capped tax means someone crossing the threshold by a small amount can still end up with marginally less take-home than someone sitting exactly at it (₹12,50,000 − ₹52,000 = ₹11,98,000, just under the ₹12,00,000 the person at the threshold keeps in full). Marginal relief removes the worst of the cliff, not the entire effect of crossing it.

How far the relief actually extends

Marginal relief only applies in a specific window just above the threshold — not indefinitely. For the new regime, that window runs from ₹12,00,000 up to roughly ₹12,70,588of taxable income. Below ₹12,00,000, the rebate wipes out tax entirely; between ₹12,00,000 and ₹12,70,588, tax is capped at the excess over ₹12,00,000; beyond ₹12,70,588, the capped amount would already exceed what ordinary slab-wise tax comes to, so relief stops applying and normal taxation simply resumes — at ₹12,80,000, for instance, the slab-wise tax of ₹72,000 (plus cess) applies in full, with no cap needed.

The same shape plays out under the old regime, just at its own ₹5,00,000 threshold: someone with ₹5,10,000 of taxable income — ₹10,000 over — has relief capping their tax at that ₹10,000 excess (₹10,400 with cess) instead of the ₹14,500 full slab-wise figure. The mechanic is identical in both regimes; only the threshold itself, and therefore the size of the relief window, differs.