Income Tax Rebate Under Section 87A

Hello Readers….!

Today, we are going to understand the Income tax rebate under Section 87A for FY 2023-24 (AY 2024-25)

Reducing Your Tax Liability with Section 87A Rebate

For FY 2023-24, the rebate under Section 87A remains the same under both the old and new tax regimes. However, due to changes in slab rates in the new tax regime, the rebate threshold has been adjusted. Under the old tax regime, resident individuals with a taxable income up to INR 5,00,000 are eligible for a rebate. In the new tax regime, this threshold is increased to INR 7,00,000.

Amount of Rebate Allowed under Section 87A

New Tax Regime: If an individual’s total taxable income is up to INR 7,00,000, they are eligible for a rebate, which is the lower of the following:
- The amount of income tax payable on their total income, or
- INR 25,000

Old Tax Regime: For resident individuals opting out of the new tax regime for FY 2023-24 and having a total taxable income of less than INR 5,00,000, the rebate is the lower of the following:
- The amount of income tax payable on their total income, or
- INR 12,500

For individuals with total income exceeding INR 7,00,000, the new tax regime offers a rebate. If the tax payable on income exceeding INR 7,00,000 is more than the excess income over INR 7,00,000, then the tax will be limited to this excess amount.

Step I – Determine the excess amount above Rs 7 lakhs.

Total income – Rs 7 Lakh (A)

Step II – Calculate the income tax liability on the total income.

Step III – If B > A, the rebate under Section 87A will be (B – A).

Steps to Claim a Tax Rebate Under Section 87A

Calculate your gross total income for the financial year.
Reduce your tax deductions for tax savings, investments, etc.
Determine your total income after accounting for these deductions.
Declare your gross income and tax deductions in your ITR.
Claim a tax rebate under Section 87A if your total income does not exceed INR 7,00,000 under the new tax regime or INR 5,00,000 under the old tax regime.

Examples of Rebate Calculation

New Tax Regime:
- Income: INR 6,00,000
- Income Tax: 5% of INR 3,00,000 (i.e., from INR 3,00,001 to INR 6,00,000) = INR 15,000
- Rebate: INR 15,000
- Tax Payable: Nil
Old Tax Regime:
- Income: INR 6,50,000
- Deductions (80C): INR 1,50,000
- Total Income: INR 5,00,000
- Income Tax: 5% of INR 2,50,000 (i.e., from INR 2,50,001 to INR 5,00,000) = INR 12,500
- Rebate: INR 12,500
- Tax Payable: Nil

Important Points to Remember

The rebate is applied to the total tax before adding a health and education cess of 4%.
Only resident individuals are eligible for this rebate.
Senior citizens aged between 60 and 80 can avail of the rebate.
The rebate amount will be the lower of the specified limit or the total income tax payable (before cess).
Section 87A rebate is available under both the old and new tax regimes.
The rebate can be claimed against various tax liabilities including normal income, long-term capital gains under Section 112, and short-term capital gains under Section 111A, but not against long-term capital gains under Section 112A.

Eligibility for Rebate under Section 87A for FY 2023-24

For the financial year 2023-24, you can claim a rebate under Section 87A under both tax regimes, provided the following conditions are met:

You must be a resident individual.
Your total income, after deductions under Chapter VI-A (such as Section 80C, 80D, etc.), does not exceed Rs 5 lakh for the financial year.

The maximum rebate available is Rs 12,500. If your total tax liability is less than Rs 12,500, you will not need to pay any tax. This rebate is applied before adding the 4% health and education cess.

Below are some calculations demonstrating the Section 87A rebate for resident individuals (under 60 years of age) with different income levels:

Total Income (Rs)	Tax Payable Before Cess (Rs)	Rebate u/s 87A (Rs)	Tax Payable + 4% Cess (Rs)
2,70,000	1,000	1,000	0
3,60,000	3,000	3,000	0
4,90,000	12,000	12,000	0
12,00,000	1,72,500	0	1,79,400

Eligibility for Rebate under Section 87A for FY 2017-18 and FY 2018-19

For the financial years 2017-18 and 2018-19, the criteria to claim the tax rebate under Section 87A were as follows:

You must be a resident individual.
Your total income, after deductions under Chapter VI-A (such as Section 80C, 80D, 80E, etc.), is less than Rs 3.5 lakh.

The rebate amount was capped at Rs 2,500. Therefore, if your tax liability did not exceed Rs 2,500, you would not be required to pay any tax.

This rebate was also applied before adding the cess: a 4% health and education cess for FY 2018-19 and a 3% education cess for FY 2017-18.

Below are examples of Section 87A rebates for resident individuals for FY 2017-18 and FY 2018-19:

Total Income (Rs)	Tax Payable Before Cess (Rs)	Rebate u/s 87A (Rs)	Tax Payable + Cess (Rs)
2,65,000	750	750	0
2,70,000	1,000	1,000	0
3,00,000	2,500	2,500	0
3,50,000	5,000	2,500	2,500+cess**

For FY 2017-18, the tax payable will be Rs 2,575, which includes the 3% cess. For FY 2018-19, the tax payable will be Rs 2,600, including the 4% cess.

Historical Rebate Limits under Section 87A

Financial Year	Limit on Total Taxable Income	Amount of Rebate Allowed u/s 87A
2023-24	INR 7,00,000 (New Tax Regime)	INR 25,000
2023-24	INR 5,00,000 (Old Tax Regime)	INR 12,500
2022-23	INR 5,00,000	INR 12,500
2021-22	INR 5,00,000	INR 12,500
2020-21	INR 5,00,000	INR 12,500
2019-20	INR 5,00,000	INR 12,500
2018-19	INR 3,50,000	INR 2,500
2017-18	INR 3,50,000	INR 2,500
2016-17	INR 5,00,000	INR 5,000
2015-16	INR 5,00,000	INR 2,000
2014-15	INR 5,00,000	INR 2,000
2013-14	INR 5,00,000	INR 2,000

By understanding and utilizing the rebate under Section 87A, you can effectively manage your tax liability and potentially reduce the amount you owe.

FAQ’s

Is surcharge included while calculating Rebate u/s 87A?

Rebate under Section 87A is available to individuals with a taxable income below INR 5 lakhs. Additionally, a surcharge is applied if the taxable income exceeds INR 50 lakhs. Therefore, anyone claiming the rebate under this section will not be subject to a surcharge.

Can NRIs claim a rebate under Section 87A?

The rebate under Section 87A is exclusively available to resident individuals. Consequently, taxpayers who qualify as non-residents are not eligible for this rebate.

How to claim rebate u/s 87A?

Only resident individuals are eligible to claim the tax rebate under Section 87A, which means Hindu Undivided Families (HUF) and firms cannot claim this rebate. This rebate can be claimed while filing an Income Tax Return (ITR).

Under the new tax regime, if you are paying self-assessment tax and your income is less than Rs 7 lakh, you can claim a full tax rebate up to Rs 25,000. Under the old tax regime, if your income is less than Rs 5 lakh after claiming deductions under Chapter VI-A, you can claim a full tax rebate up to Rs 12,500.

If your income is subject to Tax Deducted at Source (TDS), but your total income after Chapter VI-A deductions is less than Rs 5 lakh, you can claim the rebate under Section 87A while filing your return. You will then receive a refund of the TDS paid, up to Rs 12,500.

Is income tax rebate u/s 87A available on Long Term Capital Gains (LTCG)?

Yes, the rebate under Section 87A is available on the sale of long-term capital assets. However, it is not applicable to long-term equity shares and mutual funds, meaning it does not apply to Long Term Capital Gains from equity or other assets specified under Section 112A.

How is 7 lakh income tax free?

An income of Rs 7 lakh can be tax-free under the new tax regime due to the rebate provided under Section 87A. If your total income is up to Rs 7 lakh, you can claim a rebate of up to Rs 25,000, which reduces your tax liability to zero. This means that after accounting for this rebate, no tax is payable on an income of up to Rs 7 lakh.

Who Cannot claim rebate under section 87A?

Only resident individuals can claim the tax rebate under Section 87A, which means Hindu Undivided Families (HUF) and firms are not eligible. This rebate can be claimed when filing an Income Tax Return (ITR).