Section 87A vs Standard Deduction: Key Differences Explained

When it comes to reducing the tax burden, two provisions in the Indian Income Tax Act, 1961, Section 87A and the standard deduction, play crucial roles. While both aim to provide tax relief to individuals, they serve different purposes and apply under different circumstances. Section 87A is a tax rebate that directly reduces the tax payable, while the standard deduction is a flat amount subtracted from taxable income, simplifying the tax calculation for salaried individuals and pensioners.

Understanding the key differences between these two provisions is essential for taxpayers, especially as the tax landscape continues to evolve under the new tax regime introduced in the Union Budget 2025.

Introduction to Section 87A and Standard Deduction
What is Section 87A?
What is the Standard Deduction?
Key Differences Between Section 87A and Standard Deduction
How They Work Together
Practical Example (New Tax Regime, FY 2025-26)
Summary of Section 87A and Standard Deduction Benefits
Frequently Asked Questions (FAQs)

Introduction to Section 87A and Standard Deduction

Section 87A and the standard deduction are two key provisions in the Indian Income Tax Act designed to reduce the tax burden on individual taxpayers. Although both aim to provide tax relief, they function in different ways.

Section 87A is a tax rebate that directly reduces the amount of tax payable by eligible taxpayers. It is mainly aimed at individuals with lower taxable incomes, offering relief by lowering their total tax liability. Section 87A applies differently under the old and new tax regimes, with various income thresholds and rebate limits.

On the other hand, the Standard Deduction is a fixed amount that reduces an individual's taxable income. It is specifically available for salaried individuals and pensioners under the old tax regime. This deduction is a straightforward and effective way to reduce taxable income, offering tax relief without the need for documentation or proofs.

Both provisions serve important roles in tax planning, but they apply in different scenarios.

What is Section 87A?

Overview and Rebate Amounts

Section 87A of the Income Tax Act provides a tax rebate to resident individual taxpayers. The rebate directly reduces the tax payable by eligible taxpayers based on their total taxable income. This rebate is applicable only to those whose income falls below a certain threshold, with the amount of the rebate varying based on the tax regime under which the individual is filing their taxes.

New Tax Regime: For the new tax regime applicable for FY 2025-26, the Section 87A rebate is available for individuals with a total taxable income of up to ₹12 lakh. The maximum rebate available under this regime is ₹60,000. This means that if the taxpayer’s total tax liability is up to ₹60,000, it can be fully offset by the rebate.
Old Tax Regime: For the old tax regime, Section 87A provides a maximum rebate of ₹12,500, applicable to individuals whose taxable income is up to ₹5 lakh.

Section 87A in the New Tax Regime

Under the new tax regime, Section 87A provides a rebate of up to ₹60,000. This rebate is available to individual taxpayers whose taxable income is less than ₹12 lakh. The rebate amount is directly deducted from the tax payable, meaning the taxpayer will pay reduced tax or no tax at all if their liability falls within the rebate limit. The new regime simplifies tax filings by offering lower tax rates but without most deductions, including Section 87A. The rebate essentially offsets the tax liability up to the specified threshold.

Section 87A in the Old Tax Regime

Under the old tax regime, Section 87A offers a rebate of up to ₹12,500 for individuals with taxable income up to ₹5 lakh. This rebate helps reduce the overall tax liability for eligible taxpayers. However, the old regime includes a wider range of deductions and exemptions, such as those under Sections 80C and 80D, making it potentially more beneficial for certain taxpayers who can utilize these exemptions. The rebate, however, applies only to income below ₹5 lakh, meaning higher earners do not qualify.

Eligibility and Exclusions

To be eligible for Section 87A, individuals must meet certain criteria:

Resident Status: The rebate is available only to resident individual taxpayers. Non-residents and HUFs (Hindu Undivided Families) do not qualify.
Income Threshold: The rebate is applicable only if the taxable income falls within the prescribed limit. In the new tax regime, the limit is ₹12 lakh, and in the old tax regime, it is ₹5 lakh.
Exclusions: The rebate does not apply to:
- Income that is taxed at special rates, such as long-term capital gains (Section 112A or 111A), dividends, or income from the sale of equity shares.
- Taxpayers earning income above the threshold limit for their respective regimes (₹12 lakh for new and ₹5 lakh for old).

What is the Standard Deduction?

Definition and Applicability

The standard deduction is a flat deduction from the gross salary or pension income, reducing the taxable income of salaried individuals and pensioners. It allows taxpayers to lower their taxable income by a fixed amount without needing to provide evidence for specific expenses. The standard deduction applies only to those with income from salary or pension, and not to those earning income from business or profession.

Under the old tax regime, the standard deduction is ₹50,000.
Under the new tax regime, the standard deduction was increased to ₹75,000 starting from FY 2024-25.

Standard Deduction in the New Tax Regime

The new tax regime offers a standard deduction of ₹75,000. This deduction is applicable only to salaried individuals and pensioners. It helps reduce the taxable income, thereby lowering the overall tax liability. This increased amount in the new tax regime is part of the government's effort to make the regime more attractive, even though it eliminates most other deductions and exemptions.

Standard Deduction in the Old Tax Regime

In the old tax regime, the standard deduction remains ₹50,000. This deduction is available to individuals who earn income from salary or pension. While the old tax regime allows taxpayers to claim other deductions (such as under Sections 80C, 80D, etc.), the standard deduction reduces the taxable income upfront, making it easier to reduce taxes for salaried taxpayers. The amount remains the same as in the previous years.

Who Can Claim the Standard Deduction?

The standard deduction is available to:

Salaried individuals: Those who earn income through employment can claim this deduction from their gross salary.
Pensioners: Individuals receiving pensions can also claim this deduction from their pension income.

However, it is not available to self-employed individuals, freelancers, or those earning income from business or profession, as it is specifically designed for salary and pension income.

Key Differences Between Section 87A and Standard Deduction

Comparison of Benefits and Eligibility

Section 87A: A tax rebate that directly reduces the tax payable for eligible individuals. Available only to resident individual taxpayers whose taxable income is below the specified limit (₹12 lakh for the new regime and ₹5 lakh for the old regime). The rebate can reduce the tax liability to zero.
Standard Deduction: A deduction from taxable income that lowers the amount of income subject to tax. Available to salaried individuals and pensioners. The amount is ₹75,000 under the new regime and ₹50,000 under the old regime.

How They Impact Taxable Income and Tax Payable

Section 87A: Reduces the tax payable directly by the eligible rebate amount. It does not affect taxable income but lowers the final tax liability.
Standard Deduction: Reduces taxable income, which in turn lowers the amount on which tax is calculated. This results in a lower overall tax liability by reducing the income subject to taxation.

Applicability in Different Tax Regimes

New Tax Regime: Both Section 87A and standard deduction are available, but most deductions are not allowed in this regime, making these two provisions among the most beneficial.
Old Tax Regime: In addition to the standard deduction, the old regime allows a wide array of other deductions, such as under Sections 80C, 80D, and others, making it more suitable for individuals who can avail of these benefits. Section 87A is also applicable in the old regime for eligible taxpayers.

How They Work Together

Both Section 87A and the Standard Deduction play vital roles in reducing the overall tax liability of salaried individuals. However, they operate at different stages of the tax calculation process.

Section 87A is a tax rebate that directly reduces the amount of tax payable. It is applied after calculating the total tax due based on the taxable income.
The Standard Deduction is a reduction in taxable income, which, in turn, lowers the overall tax liability by reducing the amount on which taxes are calculated.

These two benefits are separate, but they can be combined to provide significant relief to taxpayers, especially those in the lower and middle-income brackets.

Section 87A and Standard Deduction in the New Tax Regime

In the new tax regime, the Standard Deduction has been increased to ₹75,000. This is a flat deduction that reduces the gross salary or pension income. If a taxpayer's taxable income, after applying the standard deduction, is up to ₹12 lakh, they are eligible for a Section 87A rebate of up to ₹60,000.

For example, a salaried individual earning ₹12 lakh per year will first deduct ₹75,000 as the standard deduction. This brings the taxable income down to ₹11.25 lakh. Now, this individual can apply the Section 87A rebate of ₹60,000, reducing their tax liability further. The result can potentially reduce their total tax payable to zero if their income is lower than ₹12 lakh.

Eligibility: A resident individual earning less than ₹12 lakh under the new tax regime is eligible for the rebate.

Section 87A and Standard Deduction in the Old Tax Regime

In the old tax regime, the Standard Deduction is set at ₹50,000. This amount is subtracted from the gross salary or pension income. After this, if the taxable income does not exceed ₹5 lakh, the taxpayer is eligible for the Section 87A rebate of up to ₹12,500.

Eligibility: Only taxpayers with taxable income up to ₹5 lakh are eligible for Section 87A in the old regime. Any income above ₹5 lakh does not qualify for this rebate.

For example, if a taxpayer has a gross salary of ₹5 lakh, after applying the standard deduction of ₹50,000, the taxable income is reduced to ₹4.5 lakh. This means the individual can claim a full ₹12,500 rebate under Section 87A, making their final tax payable zero.

Combined Tax Benefits for Salaried Individuals

For salaried individuals, the combined benefits of Section 87A and the Standard Deduction are significant, particularly in the new tax regime.

In the new tax regime, the standard deduction reduces the taxable income, and Section 87A directly reduces the tax liability. Both deductions work in harmony, providing relief at different stages of tax calculation.
In the old tax regime, while the standard deduction lowers taxable income, Section 87A can provide further relief if taxable income falls below ₹5 lakh.

For individuals earning up to ₹12 lakh (new tax regime) or ₹5 lakh (old tax regime), these deductions can significantly reduce or even nullify the tax payable, making a noticeable difference in the amount of tax paid.

Practical Example (New Tax Regime, FY 2025-26)

Let’s consider an example where an individual earns ₹12,75,000 under the new tax regime:

Calculation of Taxable Income and Tax Payable

Gross Salary: ₹12,75,000
Less: Standard Deduction: ₹75,000
- Taxable Income: ₹12,00,000
Tax Calculation on ₹12,00,000:
- Tax on ₹12,00,000 (as per new tax slabs): ₹60,000 (assuming applicable tax rate)
Less: Section 87A Rebate: ₹60,000
- Final Tax Payable (before cess): ₹0

Particulars	Amount (₹)
Gross Salary	12,75,000
Less: Standard Deduction	75,000
Taxable Income	12,00,000
Tax Calculation on ₹12,00,000	60,000
Less: Section 87A Rebate	60,000
Final Tax Payable (before cess)	0

In this scenario, the individual effectively pays no tax due to the combined benefit of the standard deduction and Section 87A rebate. This showcases the power of these two provisions working together in the new tax regime.

How Standard Deduction and Section 87A Work Together in Practice

The Standard Deduction directly lowers the taxable income, thereby reducing the income on which taxes are calculated. After the taxable income is determined, Section 87A comes into play by reducing the calculated tax liability. This two-pronged approach ensures that taxpayers get a significant reduction in their overall tax burden.

Impact on taxpayers with salaries up to ₹12 lakh (new regime): They can benefit from both the standard deduction and the Section 87A rebate, making the combined tax liability zero in many cases.
Impact on taxpayers with salaries up to ₹5 lakh (old regime): The standard deduction reduces taxable income, and Section 87A can reduce the tax payable to zero.

Summary of Section 87A and Standard Deduction Benefits

Aspect	Section 87A	Standard Deduction
Type of Benefit	Tax rebate reducing tax payable	Deduction reducing taxable income
Eligibility	Resident individuals (specific income limits)	Salaried individuals & pensioners only
Income Threshold	₹12 lakh (new regime), ₹5 lakh (old regime)	No threshold; fixed amount for salaried
Amount	Up to ₹60,000 (new regime), ₹12,500 (old regime)	₹75,000 (new regime), ₹50,000 (old regime)
Effect on Tax	Reduces tax payable directly	Reduces taxable income, thereby reducing tax
Application	Applied after calculating tax	Subtracted from salary to determine taxable income

The combined benefits of Section 87A and the Standard Deduction provide substantial tax relief to salaried individuals, especially in the new tax regime. Taxpayers can lower their tax liabilities effectively by utilizing both provisions, depending on their income levels and tax regime preferences.

FAQs

What is the Section 87A rebate, and who can claim it?

Section 87A provides a rebate to eligible taxpayers, reducing the tax payable. Resident individuals with taxable income below a specified threshold can claim this rebate. For the new tax regime in FY 2025-26, the rebate is available for income up to ₹12 lakh, with a maximum rebate of ₹60,000. In the old tax regime, the rebate is applicable for income up to ₹5 lakh, with a maximum of ₹12,500.

How does Section 87A differ in the new and old tax regimes?

Under the new tax regime, Section 87A offers a higher rebate of ₹60,000 for taxpayers earning up to ₹12 lakh. In contrast, the old tax regime provides a lower rebate of ₹12,500, but it applies to individuals earning up to ₹5 lakh. The new tax regime also does not allow exemptions like HRA or deductions under 80C, which are available under the old tax regime.

Can I claim both Section 87A and standard deduction in the new tax regime?

Yes, you can claim both the Section 87A rebate and the standard deduction in the new tax regime. The standard deduction, for salaried individuals, reduces taxable income, and if the resulting income is below ₹12 lakh, you can also claim the Section 87A rebate to reduce your tax liability further.

What is the maximum rebate under Section 87A for the new tax regime in FY 2025-26?

The maximum rebate available under Section 87A for the new tax regime in FY 2025-26 is ₹60,000. This is applicable to resident individuals with a taxable income up to ₹12 lakh.

How does the standard deduction affect taxable income?

The standard deduction is a fixed amount deducted from gross income, reducing the taxable income. For salaried individuals, it is ₹75,000 under the new tax regime (up from ₹50,000 in the old tax regime). This deduction lowers the income on which tax is calculated, potentially lowering the overall tax liability.

Is the standard deduction available for all types of income?

No, the standard deduction is available only to salaried individuals and pensioners. It does not apply to income from business, profession, or any other source of income outside of salary or pension.

Can I claim Section 87A if my income exceeds ₹12 lakh?

No, you cannot claim the Section 87A rebate if your taxable income exceeds ₹12 lakh under the new tax regime. The rebate is only available to individuals with income up to ₹12 lakh. If your income surpasses this threshold, no rebate under Section 87A is applicable.

How does the standard deduction change in the new tax regime?

In the new tax regime for FY 2024-25 and onwards, the standard deduction has increased to ₹75,000 from ₹50,000 under the old tax regime. This change benefits salaried individuals by reducing their taxable income by a larger amount, further lowering the tax liability.

Is Section 87A available under both old and new tax regimes?

Yes, Section 87A is available under both the old and new tax regimes, but the rebate amount and eligibility thresholds differ. In the new tax regime, the rebate is available for taxable income up to ₹12 lakh with a maximum of ₹60,000, while in the old tax regime, the rebate applies to income up to ₹5 lakh with a maximum rebate of ₹12,500.

What is the income threshold for Section 87A under the new tax regime?

The income threshold for Section 87A under the new tax regime is ₹12 lakh. Taxpayers earning up to ₹12 lakh are eligible for a rebate of up to ₹60,000. If the income exceeds ₹12 lakh, no rebate under Section 87A is available.

How do standard deduction and Section 87A work together for salaried individuals?

For salaried individuals, both the standard deduction and Section 87A can be claimed simultaneously. The standard deduction first reduces the taxable income, and if the resulting income is below ₹12 lakh, the taxpayer can claim the Section 87A rebate, reducing the tax payable. This combination helps reduce overall tax liability.

Does the Section 87A rebate apply to business income or only salaried income?

The Section 87A rebate is applicable to all types of taxable income, not just salaried income. However, special income types taxed at different rates, such as long-term capital gains, do not qualify for the rebate. The rebate applies to total taxable income after considering deductions like the standard deduction.