Income Tax Rebate Under Section 87A

Tax Rebate Under Section 87A: Find out Who can claim Income Tax Rebate u/s 87A for FY 2023-24 (AY 2024-25) and FY 2022-23 (AY 2023-24).

A tax rebate on an income of Rs 7 lakh has been introduced in the new tax regime (applicable for FY 2023-24).

Rebate under Section 87A helps taxpayers reduce their income tax liability. You can claim the said rebate if your total income, i.e. after Chapter VIA deductions, does not exceed Rs 5 lakh in a financial year. Your income tax liability becomes nil after claiming the rebate under Section 87A.

Let’s understand the rebate available under section 87A in detail:

Rebate u/s 87A for FY 2021-22, 2022-23, and 2023-24 (AY 2022-23, 2023-24, and 2024-25)

Under both the old and new income tax regimes, the amount of the refund under Section 87A for FY 2021-22 2022-23 [(AY (2022-23) (2023-24)] has remained unchanged. A resident individual with taxable income up to Rs 5,00,000 will be eligible for a tax rebate of Rs 12,500, or the amount of tax payable (whichever is lower). Under the new income tax regime, the amount of the rebate under Section 87A for FY 2023-24 (AY 2024-25) has been modified. A resident individual with taxable income up to Rs 7,00,000 will receive a Rs 25,000 tax relief. The former tax regime remains the same, i.e. 12,500 for income up to Rs 5,00,000.

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

If an individual's total taxable income is up to Rs.7 lakh, they will be eligible for the following tax breaks under the new tax regime for the fiscal year 2023-24:

• Rs.25,000 or the applicable tax (whichever is lower).
• It is the same as earlier Rs.12,500 under the prior tax structure.

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.
   
• Arrive at your total income after reducing the tax deductions.
   
• Declare your gross income and tax deductions in ITR.
   
• Claim a tax rebate under section 87A if your total income does not exceed Rs 5 lakh.
   
• The maximum rebate under section 87A for the AY 2022-23 is Rs 12,500.

See the example below for rebate calculation under Section 87A. 
For individuals below 60 years of age for AY 2022-23

*You can claim a deduction for tax-saving under Section 80C for eligible investments and expenditures, Section 80D for medical insurance, 80CCD for contribution to NPS, 80G for donations and other deductions to arrive at your total income.

Things to remember while availing rebate under Section 87A

• The rebate can be applied to the total tax before adding a health and education cess of 4%
• Only resident individuals are eligible to avail rebate under this section.
• Senior citizens above 60 years and below 80 years of age can avail a rebate under Section 87A
• Super senior citizens above 80 years of age are not eligible to claim rebates under Section 87A
• The amount of rebate will be lower than the limit specified under Section 87A or total income tax payable (before cess)
• Section 87A rebate is available under the old and the new tax regime

Rebate against various tax liabilities

Section 87A rebate can be claimed against tax liabilities on:

• Normal income which is taxed at the slab rate
• Long-term capital gains under Section 112 of the Income Tax Act. (Section 112 applies for long-term capital gains on the sale of any capital assets other than listed equity shares as well as equity-oriented schemes of mutual funds)
• Short-term capital gains on listed equity shares and equity-oriented schemes of mutual funds under Section 111A of the Act, on which tax is payable at a flat rate of 15%.

Note: Rebate under Section 87A cannot be adjusted against tax on long-term capital gains on equity shares and equity-oriented mutual funds (Section 112A).

Eligibility to claim rebate u/s 87A for FY 2020-21 and FY 2019-20

You can claim the benefit of rebate under section 87A for FY 2021-22, and FY 2020-21, subject to the following conditions are satisfied:

• You are a resident individual
• Your total income after reducing the deductions under Chapter VI-A (Section 80C, 80D and so on) does not exceed Rs 5 lakh in a FY

The tax rebate is limited to Rs 12,500. If your total tax payable is less than Rs 12,500, you will not have to pay any tax.
Note that the rebate will be applied to the total tax before adding the health and education cess of 4%. 

Here are a few calculations of Section 87A rebate for resident individuals (below 60 years of age) earning various levels of income:  

Example 1
Mr Ram (age 62 years and resident) is a retired person earning a monthly pension of Rs 5,000. He invested in equity-oriented funds in December 2013 and sold the same in June 2021.
Taxable LTCG amounted to Rs 4,70,000. Apart from pension income and gain on equity-oriented funds, he does not have any other income. What will be his tax liability for the year 2021-22?

Mr Ram is above 60 years, but below 80 years, the basic exemption limit is Rs 3 lakh. Further, he can adjust the basic exemption limit against LTCG on equity-oriented funds. However, the adjustment should be made against normal income, i.e. other than LTCG on equity-oriented funds. In this case, he has a pension income of Rs 60,000 (Rs 5,000 × 12) and LTCG on equity-oriented funds of Rs 4.7 lakh. 

Thus, after adjusting the basic exemption limit with the pension income, adjust the balance limit of Rs 2.4 lakh against LTCG.
The balance of Rs 2.4 lakh (Rs 3 lakh – Rs 60,000) will be adjusted against LTCG. Hence, after adjustment with LTCG on equity-oriented funds, the balance LTCG left is Rs 2.3 lakh (Rs 4.7 lakh – Rs 2.4 lakh). 
LTCG on equity-oriented funds is taxable at 10% on the LTCG above Rs 1 lakh, hence 10% tax is levied on Rs 1.3 lakh (Rs 2.3 lakh – Rs 1 lakh). A tax of Rs 13,000 is payable.

Rebate under Section 87A will not be adjusted against tax on LTCG of equity-oriented funds (Section 112A).
Hence, Mr Ram would be liable to pay a tax of Rs 13,000 plus health & education cess @ 4%.

Eligibility to claim rebate u/s 87A for FY 2018-19 and FY 2017-18

For FY 2017-18 or FY 2018-19, the eligibility criteria to claim tax rebate under Section 87A were:

• You are a resident individual
• Your total income after deductions under Chapter VI-A (Section 80C, 80D, 80E and so on) is less than Rs 3.5 lakh

The amount of the tax rebate was limited to Rs 2,500. So, if your tax payable did not exceed Rs 2,500, then you would have to pay tax.

Note that the tax rebate will be applied to the total tax before adding the health and education cess of 4% (FY 2018-19) or education cess of 3% (FY 2017-18).

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

**Tax payable for FY 2017-18 will be Rs 2,575 i.e. Rs 2,500 + 3% cess and
tax payable for FY 2018-19  will be Rs 2,600 i.e. Rs 2,500 + 4% cess
 

Rebate limit under Section 87A for all the financial years

Frequently Asked Questions

Can NRIs claim a rebate under Section 87A?

No, this rebate is only allowed for resident individuals. Therefore, taxpayers qualifying as non-residents are not eligible for a rebate under 87A.

Can anyone claim this rebate?

This rebate is only allowed to individuals. HUFs or firms, or companies cannot claim this rebate.

How can I claim Section 87A rebate in ClearTax Software?

ClearTax e-filing software automatically gives the rebate while e-filing if you are eligible.

How to claim rebate u/s 87A?

Only resident individuals can claim tax rebate u/s 87A, which means HUF and firms cannot claim this rebate. This rebate can be claimed while filing an ITR return. If you are paying self-assessment tax and 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 TDS, but your total income after Chapter VI-A deductions is less than Rs 5 lakh, you can claim rebate u/s 87A while filing a return, and you will receive a refund of TDS paid up to Rs 12,500.

How to calculate rebate u/s 87a?

Section 87A provides a tax rebate to individual taxpayers if their total income is less than Rs 5 lakh after claiming deductions. Hence, firstly determine taxable income after deductions to check the eligibility of the rebate.

• Calculate your gross total income and reduce deductions under Section 80C to 80U. If the same is below Rs 5 lakh, you are eligible for a tax rebate, i.e. full tax up to Rs 12500 will be deducted as per section 87A.
• If taxable income is more than Rs 5 lakh, then no rebate can be claimed.

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

Rebate u/s 87A is available to those who have taxable income below INR 5 Lakhs and Surcharge is levied if taxable income is above INR 50 Lakhs. So a person availing this section will never attract a levy of surcharge.

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