The income tax rebate under Section 87A provides some relief to the taxpayers who fall under the tax category of 10%. Any individual whose annual net income does not exceed Rs.5 Lakh qualifies to claim tax rebate under Section 87A of the Income Tax Act, 1961. This implies an individual can get a rebate on the tax of up to Rs.2,000.
In this way, the deduction will be either Rs.2000 or 100% of the salary of an individual, whichever is smaller.
One more noteworthy point of section 87A of income tax is it is offered only to individuals and not the people of Hindu Undivided Families, BOI/ AOP, Company, or any firm. Moreover, the total rebate amount should not exceed the amount of the income tax calculated before the deduction on the total income of the person with which he/she will be charged for the assessment year.
Rebate u/s 87A for FY 2023-24 (AY 2024-25)
Budget 2023 proposed several amendments, and the aim was to make the new tax regime more lucrative. For FY 2023-24(AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, for the old tax regime, the threshold limit will remain the same, i.e.12,500 for income up to Rs 5,00,000.
Please Note:- This is applicable from the financial year FY 2023-24 (AY 2024-25).
| Financial Year | Limit on total taxable Income | Amount of rebate allowed u/s 87A |
|---|---|---|
| 2023-2024 | Rs. 5,00,000 Rs.7,00,000 | Rs. 12,500 Rs. 25,000 |
| 2022-2023 | Rs. 5,00,000 | Rs. 12,500 (under the old regime) Rs.12,500 (under the new regime) |
| 2021-22 | Rs. 5,00,000 | Rs. 12,500 |
| 2020-21 | Rs. 5,00,000 | Rs. 12,500 |
| 2019-20 | Rs. 5,00,000 | Rs. 12,500 |
| 2018-19 | Rs. 3,50,000 | Rs. 2,500 |
| 2017-18 | Rs. 3,50,000 | Rs. 2,500 |
| 2016-17 | Rs. 5,00,000 | Rs. 5,000 |
| 2015-16 | Rs. 5,00,000 | Rs. 2,000 |
| 2014-15 | Rs. 5,00,000 | Rs. 2,000 |
| 2013-14 | Rs. 5,00,000 | Rs. 2,000 |
Eligibility Criteria for Claiming Tax Rebate Under Section 87A
- The rebate is meant only for individual taxpayers. If you belong to a HUF or you want it for your firm or company, this rebate cannot be availed.
- There are no gender-based restrictions for this section, i.e. men and women can both avail the benefits.
- The net taxable income of an individual should not be more than ₹5,00,000 for the FY 2023- 2024.
- As per the laws, a maximum rebate of INR 12,500 can be availed under this section. To put it in a nutshell, if the taxes that you are liable to pay are INR 12,500 or less, this rebate can be availed by you.
| Income Slab (in Rs) | Tax payable before cess (in Rs) | Rebate u/s 87A (in Rs) | Tax Payable + 4% Cess (in Rs) |
| 2,70,000 | 1000 | 1000 | 0 |
| 3,60,000 | 3000 | 3000 | 0 |
| 4,90,000 | 12000 | 12000 | 0 |
| 12,00,000 | 1,72,500 | 0 | 1,79,400 |
Section 87A Eligibility Criteria for FY 2023-24 and FY 2024-25
- An individual can claim a tax rebate us 87A provided he or she meets the following conditions:
- The individual must be an Indian resident.
- The total income, deductions under Section 80, has to be less than or equal to Rs. 3,50,000.
Note – The rebate that can be claimed in the financial years stated above is limited to Rs. 2,500. This means that if the total payable tax is below Rs 2,500, that amount will be the respective rebate under section 87A.
Let’s understand this in a better way by considering the details in the following tabulated format:
| Taxable income | Income Tax | Applicable Rebate under Section 87A | Total Tax Payable |
| Rs. 3 lakhs | Rs. 2,500 | Rs. 2,500 | Nil |
| Rs. 3.1 lakhs | Rs. 3,000 | Rs. 2,500 | Rs. 500 |
| Rs. 3.2 lakhs | Rs. 3,500 | Rs. 2,500 | Rs. 1,000 |
| Rs. 3.3 lakhs | Rs. 4,000 | Rs. 2,500 | Rs. 1,500 |
| Rs. 3.4 lakhs | Rs. 4,500 | Rs. 2,500 | Rs. 2,000 |
| Rs. 3.5 lakhs | Rs. 5,000 | Rs. 2,500 | Rs. 2,500 |
| Rs. 3.6 lakhs | Rs. 5,500 | Nil | Rs. 5,500 |
| Rs. 3.7 lakhs | Rs. 6,000 | Nil | Rs. 6,000 |
| Rs. 3.8 lakhs | Rs. 6,500 | Nil | Rs. 6,500 |
Rebate u/s 87A was introduced with the motive of providing relief to the taxpayers who fall in the lowest tax bracket. The implementation of this section armed the government by providing direct benefits to the respective section without a reduction in the overall tax rates. The frequently changing limits of 87A are evidence of the same.
How to Claim Rebate u/s 87A?
- Calculate your Gross Total Income(GTI).
- Reduce the deductions under sections 80C to 80U.
- Calculate your Tax Payable as per Income Tax slabs.
- The amount of rebate is tax calculated or Rs 25000/12500, whichever is lower ( if your total income does not exceed Rs 7 lakhs in the case of the new tax regime and Rs. 5 lakhs in case of the old tax regime.)
The taxes payable for the FY 2023-24 (AY 2024-25) under the old regime are as under:
| Tax Payable | Rebate u/s 87A |
|---|---|
| Less than Rs. 12,500 | Equal to the tax amount payable |
| Exactly Rs. 12,500 | Rs. 12,500 |
| More than Rs. 12,500 | NIL |
Rebate granted under section 87A will depend upon your taxes payable for the FY 2023-24 (AY 2024-25) under the new regime. As under:
| Tax Payable | Rebate u/s 87A |
|---|---|
| Less than Rs. 25,000 | Equal to the tax amount payable |
| Exactly Rs. 25,000 | Rs. 25,000 |
| More than Rs. 25,000 | NIL |
Let us consider an example to understand the calculations better
Suppose the Total Taxable Income of Mr. Virat, who opted for the new regime, is
A) Rs. 5 Lakhs
B) Rs. 7 Lakhs
C) Rs. 8 Lakhs
Calculation of rebate u/s 87A and Tax Payable for the FY 2023-24 (AY 2024-25)
| Particulars | Amount | Amount | Amount |
|---|---|---|---|
| Total Taxable Income | 5,00,000 | 7,00,000 | 8,00,000 |
| Less: Basic Exemption Limit | 300000 | 300000 | 300000 |
| Taxable Income after Basic exemption limit | 200000 | 400000 | 500000 |
| Tax Payable | 10000 | 25000 | 35000 |
| Less: Rebate under section 87A Lower of 1) Tax Payable or 2) Rs 12,500/25000 | 10000 | 25000 | NIL* |
| Balance Tax Payable | NIL | NIL | 35000 |
| Add: Health & Education Cess @ 4% | – | – | 1400 |
| Final Tax payable | – | – | 36400 |
FAQs
How is the Section 87A rebate calculated?
To calculate the rebate under Section 87A, first determine your gross income and subtract deductions under Sections 80C to 80U. If your net taxable income is below ₹5 lakhs, you qualify for a rebate of up to ₹12,500 on the tax due before health and education cess.
Who cannot claim the rebate under Section 87A?
Only resident individuals can claim the rebate under Section 87A of the Income-tax Act. Non-resident individuals (NRIs), Hindu Undivided Families (HUFs) and firms are not eligible for this rebate.