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- Income Tax Rebate under Section 87A: Claiming the 87A Rebate
Updated on: 12 Mar, 2024 11:57 AM
In 2013-14, the government of India introduced a rebate u/s 87A. This rebate helps reduce the income tax liability of taxpayers. It is a benefit provided by the government to incentivize and provide relief to certain categories of taxpayers. The rebate amount under Section 87A allows a tax rebate of up to Rs. 12,500 for individuals with taxable income up to Rs. 5,00,000 (FY 2022-23) under the old regime.
Under Budget 2023, the government announced that any individual opting for the new tax regime and having taxable income up to Rs. 7 lakh will be eligible for a tax rebate of Rs 25,000.
(The change is effective from 1st April 2023.)
Contents
- Rebate u/s 87A for FY 2021-22( AY 2022-23) and FY 2022-23 (AY 2023-24)
- Rebate u/s 87A for FY 2023-24 (AY 2024-25)
- What is Total Taxable Income for Claiming Rebate u/s 87A?
- How to Claim Rebate u/s 87A?
- Eligibility to Claim a Rebate from Section 87A?
- Rebate Against Various Tax Liabilities
- FAQs on Rebate u/s 87A
Rebate u/s 87A for FY 2021-22( AY 2022-23) and FY 2022-23 (AY 2023-24)
Rebate u/s 87A provides a benefit on tax payments to a Resident Individual. The only condition to avail of the benefit is:-
“Your total taxable income (after reducing the deductions under Chapter VI-A (Section 80C, 80D, and so on) shall not exceed the threshold limit.”
Only the taxpayers falling under the specified threshold limit can claim the benefit of rebate u/s 87A. For the FY 2021-22 and FY 2022-23 [AY 2022-23) (AY 2023-24)], this limit is Rs. 5,00,000. This means, under both the old and new tax regimes, a resident individual with taxable income up to 5 lakh is eligible to claim the tax rebate of 12,500, or the amount of tax payable (whichever is lower).
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 the 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 fiscal 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 |
What is Total Taxable Income for Claiming Rebate u/s 87A?
Total Taxable Income to claim rebate u/s 87A shall be your:
- Gross Total Income
- Less: Deduction u/s 80C to 80U
Example to understand the calculation of Total Taxable Income for rebate u/s 87A
Mr. Virat, a resident individual aged 28 years, has
| Total Income | Rs. 5,75,000 |
|---|---|
| Investments made u/s 80C | Rs. 1,50,000 |
| Medical policy taken u/s 80D | Rs. 25,000 |
What will be the total taxable Income of Mr Virat for Assessment Year 2023-24 and 2024-25.
Solution: Total Taxable Income of Mr Virat will be
| Total Income | Rs. 5,75,000 |
|---|---|
| Less : Investments made u/s 80C | Rs. 1,50,000 |
| Less : Medical policy taken u/s 80D | Rs. 25,000 |
| Total Taxable Income (TTI) | Rs 4,00,000 |
Since, his TTI is below the threshold of Rs. 5,00,000, hence taxpayer Mr. Virat is eligible for claiming rebate u/s 87A for FY 2022-23 and FY- 2023-2024. This rebate limit is increased from 5 lakhs to 7 lakhs under the new regime for FY 2023-24.
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How to Claim Rebate u/s 87A?
The sequential steps involved in the calculation of rebate u/s 87A are
- 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 case of the new tax regime and 5 lakhs in case of 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 |
*The benefit of rebate u/s 87A is not available because total taxable income exceeds Rs 7,00,000 under the new tax regime.
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Eligibility to Claim a Rebate from Section 87A?
The income tax rebate under section 87A will be automatically claimed when filing your Income Tax Return. The condition to avail of rebate under Section 87A is:-
- Only resident individuals are eligible
- Senior citizens above 60 years and up to 80 years of age are eligible to claim rebates under Section 87A.
- Super senior citizens above 80 years are not eligible to claim the rebate.
- The rebate is applicable to the total tax amount before applying 4% health and education cess.
- The total income after subtracting the deductions should not exceed the threshold limit of Rs. 5 lakhs under the old regime or Rs. 7 Lakhs for FY- 2023-24 under the new regime.
Rebate Against Various Tax Liabilities
Section 87A rebate can be claimed against tax liabilities on:
- Income which is calculated as taxable as per the slab rate.
- Long-term capital gains under Section 112 of the Income Tax Act other than listed equity shares and equity-oriented schemes of mutual funds.
- Short-term capital gains under Section 111A for listed equity shares and equity-oriented schemes of mutual funds on which tax is payable at a flat rate of 15%.
The main aim of introducing Rebate under section 87A was to alleviate the burden on taxpayers falling within the lowest tax bracket. This provision empowers the government to offer direct benefits to this specific group without necessitating a decrease in overall tax rates.
Filing income tax returns can be complex, and availing the benefits of rebates requires careful planning. If you are uncertain about the process or need expert advice, consider seeking assistance from a qualified tax consultant or chartered accountant. Get Tax Consultancy Now!
FAQs on rebate u/s 87 A
Q- Can NRI claim rebate u/s 87A?
No, the benefit of rebate u/s 87A is not available to Non-Resident Indians (NRI’s)
Q- Is rebate u/s 87A available to HUF or its members?
Rebate u/s 87A is allowed to individuals only. Hence, the members of HUF can claim rebate u/s 87A in their capacities as a resident of India. But, no rebate shall be allowed to HUF.
Q- Can my father be a Senior Citizen and claim rebate u/s 87A?
Yes, he can validly claim rebate u/s 87A. He is a Resident Individual, and all Resident Individuals can claim rebate u/s 87A if their total taxable income is up to Rs. 7,00,000 under the new tax regime. Learn how, with the help of the example below :
| Total Taxable Income (FY-2023-24) Opted new Regime | 7,00,000 |
| Less : Basic Exemption Limit (For Senior citizen) | 3,00,000 |
| Taxable Income | 4,00,000 |
| Tax Payable | 25,000 |
| Less : Relief under section 87A, lower of 1) Tax amount or 2) Rs 25000 | 25,000 |
| Add : Health & Education Cess @4% | 0 |
| Final Tax payable | 0 |
Q- Will my exempt income, like interest earned from the PPF account, be added back to calculate rebate u/s 87A?
For the purpose of calculating rebate u/s 87A, no special adjustments are required to be made. Hence, taxable income will be computed in the usual manner, and exempt income like PPF interest earned shall not be added back.
Q- How to claim rebate u/s 87A while filing my ITR with Tax2win?
Every year, you have to worry about a lot of things, like paying taxes, availing exemptions, and filing the ITR. Finally, it's your time to take a break and rest!! While filing your income tax return with Tax2Win, you need not worry about claiming a rebate u/s 87A. Our software automatically allows you to benefit with 100% accuracy.
Q- Whether a surcharge will apply in calculating the rebate u/s 87A?
A person claiming rebate u/s 87A will never attract a levy of surcharge. Rebate under this section is allowed to a resident individual having a total taxable income maximum of up to Rs. 7,00,000 under the new tax regime. Whereas a surcharge @ 10% is triggered if the total income of an individual exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore. Since the TTI of a person claiming a rebate will always be at most Rs. 7,00,000 under the new tax regime, he will never attract a surcharge while claiming rebate u/s 87A.
Q- What is the difference between Relief u/s 89 and rebate u/s 87A?
Apart from what their name suggests, one is a Relief, and the other is a rebate; there are numerous differences between sections 89 and 87A. A better understanding of this could be drawn with the help table below
| Rebate u/s 87A | Relief u/s 89 |
|---|---|
| Applies to income earned from all heads of Income | Applies only to Income under the head salaries |
| No separate form is required to be filled | For claiming the relief individual is required to fill form 10E |
| Health & Education Cess is levied after allowing rebate u/s 87A | Health & Education Cess is levied before Relief u/s 89 is provided. |
| The surcharge can never apply in this case | Surcharge may be attracted |
| Rebate is granted to each resident individual upto a maximum prescribed limit of Rs 12,500 for FY 2020-21, FY 2021-22, and FY 2022-23 and under the new regime Rs 25,000 for FY 2023-24 | No such standard predefined limit prevails in case of Relief u/s 89 of the Income Tax Act |
| For claiming rebate u/s 87A a threshold is described for Total Taxable Income | There is no threshold on Total Taxable Income of the assessee |
| Rebate is accorded for the current year income | Relief is related to past year income received in current year |
| A calculation of past year taxes is not required for claiming rebate in the current year | Relief in the current year is sought upon tax calculation of previous years |
| A resident individual is entitled to rebate at the time of filing his income tax return for the relevant year | An individual is entitled to Relief when he files both his income tax return and Form 10E. |
From the above comparative study, we can successfully infer that rebate u/s 87A and Relief u/s 89 are two completely distinguished provisions made under the same Act.
Q- What is the income tax exemption limit for calculation of income tax rebate under section 87A?
For the purpose of the calculation of Sec 87A, the income tax exemption limit shall be the same as basic exemption limit. Currently this limit stands at Rs. 3,00,000 under new regime for FY- 2023-2024. However if your total income is upto Rs. 7,00,000 under the new tax regime then you are entitled to get the benefit of tax rebate u/s 87A of Rs. 25,000 or 100% of tax amount whichever is lower.
Q- What is the difference between income tax rebate and income tax deductions?
Following are the differences between income tax rebate and income tax deduction
| Income Tax Rebate | Income Tax Deductions |
|---|---|
| Allowed without any investment | Normally available for the amount invested |
| Taxable income should be up to the limit specified | No restriction on taxable income |
| Cannot be claimed by NRI and HUF | Eligible deductions can be claimed by HUF and NRI as well |
| Rebate u/s 87A is deducted from tax payable | Deductions are reduced from income and not the tax amount |
Q- Is income tax rebate u/s 87A available on Long Term Capital Gains (LTCG)?
Rebate u/s 87A is not available on sale or transfer of equity shares i.e. on Long Term Capital Gains from equity or others as specified under section 112A. It is available on all other capital gains.
Q- Is rebate u/s 87A available on agricultural income?
Yes, income tax rebate u/s 87A is available on taxable income which includes agricultural incomes as well.
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CA Abhishek Soni
Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.
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