Income Tax Rebate under Section 87A

Read on to know everything about tax rebate under 87A, how it works, eligibility and process to claim rebate.
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15-January-2025

The rebate under Section 87A applies to individual taxpayers whose total income does not exceed the specified threshold. The income limit is Rs. 7 lakh under the new tax regime and Rs. 5 lakh under the old regime. If your income falls within these limits, your tax liability will effectively be reduced to zero.

What is an income tax rebate?

Income tax rebate refers to a deduction from the total tax payable by an individual. Unlike tax deductions that reduce taxable income, rebates directly decrease the tax liability, resulting in a reduction of the final tax payable. Taxpayers can claim a tax rebate if they have overpaid taxes or if they are eligible for a tax credit.

What is Section 87A Rebate for Financial Year (FY) 2024-25 and Assessment Year (AY) 2025-26?

Section 87A of the Income Tax Act, 1961, provides a tax rebate to resident individual taxpayers with taxable income up to Rs. 7 lakhs. This provision remains unchanged in the Union Budget 2024, aligning with the previous year's budget. For the financial year 2024-25 (Assessment Year 2025-26), the rebate limit under the new tax regime continues to be Rs. 7,00,000. Eligible taxpayers can avail of a rebate equal to the lesser of their payable income tax on total income or Rs. 25,000. In contrast, under the old tax regime, the rebate limit remains at Rs. 5,00,000 with a maximum rebate amount of Rs. 12,500.

Read more about the tax benefits of health insurance

What are example of rebate u/s 87A?

Here are the examples of section 87A of income tax act:

FY 2024-25) income source

Amount under old tax regime

Amount under new tax regime

Gross Total Income

Rs. 7 lakhs

Rs. 7.5 lakhs

Standard Deductions

Rs. 50,000

Rs. 75,000*

Section 80C Deductions

Rs. 1.5 lakhs

--

Total Taxable Income

Rs. 5 lakhs

Rs. 6.75 lakhs

Income Tax Payable

Rs. 12,500

Rs. 18,750

Section 87A Rebate

Rs. 12,500

Rs. 18,750

Tax payable

NIL

NIL


What is the income tax rebate under section 87A?

Income tax rebate under section 87A allows eligible individuals to avail of a rebate on their total tax liability. As per the provisions of this section, taxpayers meeting specific criteria are entitled to a rebate of up to a certain amount, thereby reducing their tax burden.

Both the previous and current income tax systems maintain an unaltered refund amount under section 87A for the financial years 2021-22 and 2022-23 (87a rebate in new tax regime for AY 2022-23 and 2023-24).

  • A resident individual with taxable income not exceeding Rs. 5 lakh remains eligible for a tax rebate of Rs. 12,500 or the equivalent of the tax payable, whichever is lower.
  • In the new income tax system, alterations have been made to the rebate under section 87A for the financial year 2023-24 (assessment year 2024-25). A resident individual with taxable income not exceeding Rs. 7 lakh will now receive a tax relief of Rs. 25,000. The previous tax regime persists, maintaining the rebate of Rs. 12,500 for income up to Rs. 5 lakh.

Also, read: 115bac of income tax act

Understanding the Section 87A Rebate for FY 2024-25 and AY 2025-26

Section 87A of the Income Tax Act, 1961, stipulates a provision for a tax rebate applicable to resident individuals with taxable income falling below a specific threshold. For the fiscal year 2024-25 (Assessment Year 2025-26), the 87a rebate threshold remains unchanged, allowing individuals with taxable income up to Rs. 7 lakh to benefit from this provision under the new tax regime.

Consequently, individuals meeting the criteria of having taxable income not exceeding Rs. 7 lakh are eligible for a rebate equivalent to Rs. 25,000 or the total tax payable, whichever amount is lesser. Additionally, it is crucial to understand the applicable income tax slabs for FY 24-25 under both old and new tax regimes.

How much is the rebate allowed u/s 87A?

Under the old tax regime, Section 87A provides a tax rebate of Rs. 12,500 for individuals with a taxable income not exceeding Rs. 5 lakhs. For those opting for the new tax regime, Section 115 BAC (1A) offers a maximum rebate of Rs. 25,000 to resident individuals whose total income does not surpass Rs. 7 lakhs. The US 87A rebate is calculated as the lesser of the following:

Particulars

Amount in Rs.

 

Step I: Calculate excess above Rs. 7 lakhs (Rs. 7,15,000 – Rs. 7,00,000)

Step II : Tax on total income of Rs. 7,15,000

Tax on First Rs. 3,00,000 - Nil

Tax on next Rs. 3,00,000 @ 5% - Rs. 15,000

Tax on balance Rs. 1,15,000 @ 10% - Rs. 11,500

Step III : Since B>A, rebate u/s 87A would be (B-A)

(Rs. 26,500 - Rs. 15,000)

15,000

 

 

26,500

(A)

 

 

(B)

11,500

(B-A)

Tax On total income

Rebate u/s 87A

26,500

11,500

 

Tax payable (this is equivalent to income in excess of Rs. 7 lakhs)

Add: Health & Education Cess @ 4%

15,000

600

 

Tax Liability

15,600

 


How to claim tax rebate under section 87A?

Claiming a tax rebate under section 87A is a straightforward process. It is crucial to accurately calculate the rebate amount and ensure compliance with the conditions specified under section 87A. Given below are the steps for the same:

  • Step 1: Calculate your gross total income for the previous financial year.
  • Step 2: Deduct all tax-saving investments and deductions claimed from the gross total income.
  • Step 3: This deduction leaves you with your gross total income after tax deductions, which is your taxable income for the financial year (or the previous year).
  • Step 4: Estimate your gross tax liability based on the gross total income, excluding any cess.
  • Step 5: Apply the 87A rebate to your gross tax liability before cess to determine your net tax liability.

Read More: Section 80D: Deductions for medical & health insurance

Eligibility criteria to claim income tax rebate under 87A

To claim an income tax rebate under section 87A, the taxpayer must meet the following criteria:

  • The taxpayer must be an individual taxpayer, Hindu Undivided Family (HUF), or any other taxpayer.
  • The tax rebate is only available to those with a net taxable income below Rs. 5 lakh.
  • The tax rebate is available only to those taxpayers who do not have any agricultural income.
  • The tax rebate is available only to those taxpayers who are Indian residents.
  • Individuals with tax liabilities below the specified threshold are exempt from tax payments. 
  • Rebate eligibility: 
    • Senior citizens (aged 60 to 80 years) are eligible to claim a tax rebate.
    • Super senior citizens (aged above 80 years) are not eligible for this rebate.

Also check: Health Insurance

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Example of tax rebate u/s 87A for FY 2024-25 (AY 2025-26)

Here is an example of US 87A rebate for FY 2024-25 (AY 2025-26):

Total Annual Income (Rs.)

Tax Payable before Cess

Rebate Under Section 87A

Tax Payable+4% Cess

Rs. 2.65 lakhs

Rs. 750

Rs. 750

0

Rs. 2.7 lakhs

Rs. 1,000

Rs. 1,000

0

Rs. 3 lakhs

Rs. 2,500

Rs. 2,500

0

Rs. 3.5 lakhs

Rs. 5,000

Rs. 2,500

Rs. 2,500 + cess**

 

What is the limit of rebate under Section 87A for previous financial years?

Financial year

Total income taxable limit

Rebate under Section 87A

2024-25

New Tax Regime: Rs. 7 lakhs

Rs. 25,000

Old Tax Regime: Rs. 5 lakhs

Rs. 12,500

2023-24

New Tax Regime: Rs. 7 lakhs

Rs. 25,000

Old Tax Regime: Rs. 5 lakhs

Rs. 12,500

2022-23

Rs. 5 lakhs

Rs. 12,500

2021-2022

Rs. 5 lakhs

Rs. 12,500

2020-2021

Rs. 5 lakhs

Rs. 12,500

2019-2020

Rs. 5 lakhs

Rs. 12,500

2018-2019

Rs. 3.5 lakhs

Rs. 2,500

2017-2018

Rs. 3.5 lakhs

Rs. 2,500

2016-2017

Rs. 5 lakhs

Rs. 5,000

2015-2016

Rs. 5 lakhs

Rs. 2,000

2014-2015

Rs. 5 lakhs

Rs. 2,000

2013-2014

Rs. 5 lakhs

Rs. 2,000


Also read: 1940 TDS

Steps to claim rebate under section 87A rebate in ITR filing?

To claim the us 87A rebate in your Income Tax Return (ITR) filing, follow these steps:

  • Compute your gross total income for the financial year.
  • Subtract eligible tax deductions for savings, investments, etc.
  • Determine your total income after accounting for these deductions.
  • Report your gross income and deductions in your ITR.
  • If your total income does not exceed Rs. 7 lakh under the new tax regime or Rs. 5 lakh under the old regime, claim the tax rebate under Section 87A. The maximum rebate for AY 2024-25 is Rs. 25,000 under the new regime and Rs. 12,500 under the old regime.

Things to remember while availing rebate under section 87A

Taxpayers claiming a rebate under section 87A must keep in mind the following points:

Compliance with tax laws:

Ensure compliance with all relevant tax laws and regulations while claiming the rebate. This includes filing your Income Tax Return (ITR) on time, accurately reporting income, and correctly applying for deductions. Non-compliance can lead to penalties, fines, or disqualification from receiving the rebate.

Accurate calculation:

Calculate the rebate amount diligently to avoid any discrepancies in tax filing. Any miscalculations or errors in determining your tax liability can result in discrepancies, potentially leading to delays or issues with your tax filing.

Keep documentation:

Maintain proper documentation of income, deductions, and tax payments for seamless filing and claim of rebate. This documentation will support your rebate claim, facilitate seamless ITR filing, and provide evidence in case of an audit or query from tax authorities.

Review eligibility:

Regularly review eligibility criteria and any changes in tax laws to maximise benefits. Staying informed about updates will help you maximise your tax benefits and ensure that you meet all requirements to claim the rebate effectively each financial year.

Rebate amount

  • Eligible amount: The rebate is applicable to the total income tax liability calculated before the addition of the 4% health and education cess.
  • Calculation: The rebate amount is determined as the lesser of:
    • The rebate limit specified under Section 87A of the Income Tax Act.
    • The total income tax payable (prior to cess calculation).

Applicable tax liabilities

The rebate may be claimed against tax liabilities arising from:

  • Income taxed at slab rates: Tax levied on normal income under applicable tax slabs.
  • Long-term capital gains: Tax on long-term capital gains as per Section 112 of the Income Tax Act, excluding gains from listed equity shares and equity-oriented mutual fund schemes.
  • Short-term capital gains: Tax on short-term capital gains from listed equity shares and equity-oriented mutual fund schemes under Section 111A, taxed at a flat rate of 15%.

Non-applicable tax liabilities

The rebate provided does not apply to the tax levied on long-term capital gains derived from investments in equity shares and equity-oriented mutual funds, as outlined in Section 112A of the Income Tax Act.

In conclusion, there is a significant tax relief under section 87A, particularly those with modest incomes. By reducing the tax burden on eligible individuals, this provision promotes tax compliance and financial inclusivity. Taxpayers are encouraged to leverage the benefits offered under section 87A by adhering to the prescribed criteria and procedures.

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Frequently asked questions

Can the 87A rebate be claimed on agricultural income?

Yes, the income tax rebate under section 87A is applicable to taxable income, encompassing agricultural incomes as well.

What is the 87A limit in 2024?

Section 87A of the Income Tax Act, 1961, offers a tax rebate for resident individuals with taxable income below a specific threshold. For the fiscal year 2024-25 (AY 2025-26), the rebate limit remains unchanged, continuing at up to Rs. 7 lakh under the new tax regime.

Are NRIs eligible to claim a rebate under section 87A?

Rebate under section 87A is only applicable for Indian citizens and not for NRIs.

Who is eligible for an 87A rebate?

Resident individuals in India with a total taxable income of up to Rs. 7 lakh under the new tax regime or up to Rs. 5 lakh under the old regime are eligible for the Section 87A rebate, reducing their tax liability.

How is section 87A rebate calculated?

The Section 87A rebate is calculated by reducing the tax liability for eligible individuals. Under the new tax regime, the maximum rebate is Rs. 25,000, while under the old regime, it is Rs. 12,500, based on the taxable income limit.

What is the 87A rebate for FY 2024-25?

For FY 2024-25, the maximum amount eligible for the 87A rebate is Rs. 12,500 for old tax regime and Rs. 25,000 for new tax regime. This rebate is available to individuals who invest in eligible savings and investment schemes.

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