Income Tax Rebate Under Section 87A

Updated on: Mar 15th, 2024

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22 min read

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 to 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 FY 2023-24. 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 rebate under Section 87A for FY 2021-22 & FY 2022-23 [(AY (2022-23) & AY (2023-24)] has remained unchanged. However, from FY 2023-24 due to a change in the slab rates under the new tax regime, the rebate threshold is changed. Under the old tax regime, a resident individual with taxable income up to Rs 5,00,000 will be eligible for a tax rebate and under the new income tax regime, a resident individual with taxable income up to Rs 7,00,000 will be eligible for a tax rebate.

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

If an individual's total taxable income is up to Rs.7 lakh and chooses the new tax regime, they will be eligible for rebate of lower of the following:

  • an amount of income tax payable on his total income or
  • an amount up to Rs 25,000 

Whereas a resident individual paying tax under optional tax regime (shifting out of the new tax regime) for the financial year 2023-24 and having a total taxable income of less than Rs 5 Lakh, rebate shall be lower of the following:

  • an amount equal to the amount of income tax payable on his total income or
  • an amount of Rs 12,500.

Under the new tax regime, in addition to above one more rebate cover is also available for individuals having total income just above Rs. 7 lakhs.

If the income of an individual exceeds Rs 7,00,000 and tax payable on such income is exceeding the income amount over and above Rs.700,000, then the tax will be limited to the extent of such income exceeding Rs. 7 lakhs. 

Step I – Calculate excess above Rs. 7 lakhs Total income – Rs 7 Lakh (A)

Step II  - Compute income-tax liability on total income (B)

Step III – if B>A rebate under section 87A would be  (B-A).

 

Let’s try to understand this with below example

Mr. Ravi aged 36 years and a resident in India, has a total income of Rs 7,15,000, comprising his salary income and interest on bank fixed deposit. The tax liability for AY 2024-25 under the new tax regime is as follows.

Solution : 

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

 

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 7 lakh under the new tax regime &  5 lakh for the old tax regime (shifting out of the default tax regime)
  • The maximum rebate under section 87A for the AY 2024-25  is Rs 25,000 under the new tax regime and Rs 12,500 under the optional tax regime.

See the example below for rebate calculation under Section 87A. 

Under the new tax regime, for individuals below 60 years of age for AY 2024 -25

Source of income (FY 2023-24 )

Income (Rs)

Gross total income

6,00,000 

Less: Deduction under section 80C*

NA 

Total income

6,00,000

Income-tax (@ 5% from Rs 3 lakh to Rs 6 lakh) 

15,000 

Less: Rebate u/s 87A

15,000 

Tax payable

Nil

* Deduction under section 80C is not eligible for the taxpayer who pays tax under the new tax regime .

Under the old tax regime, For individuals below 60 years of age for AY 2024-25 

Source of income (FY 2023-24)

Income (Rs)

Gross total income

6,50,000

Less: Deduction* under section 80C

1,50,000

Total income

5,00,000

Income-tax (@ 5% from Rs 2.5 to 5 lakh)

12,500

Less: Rebate u/s 87A

12,500

Tax payable

Nil

*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
  • 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 2022-23 

You can claim the benefit of rebate under section 87A for FY 2022-23 under both the tax regimes, 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:  

Total Income (Rs)

Tax payable before cess under both regimes (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

Eligibility to claim rebate u/s 87A for FY 2021-22, 2020-21 and FY 2019-20

You can claim the benefit of rebate under section 87A for FY 2021-22, FY 2020-21 and FY 2019-20 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:  

Total Income (Rs)Tax payable before cess (Rs)Rebate u/s 87A (Rs)Tax Payable + 4% Cess (Rs)
2,70,0001,0001,0000
3,60,0003,0003,0000
4,90,00012,00012,0000
12,00,0001,72,50001,79,400

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:

Total Income (Rs)Tax payable before cess (Rs)Rebate u/s 87A (Rs)Tax Payable + 4% Cess (Rs)
2,65,0007507500
2,70,0001,0001,0000
3,00,0002,5002,5000
3,50,0005,0002,5002,500+cess**

**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

Financial YearLimit on total taxable IncomeAmount of rebate allowed u/s 87A
2023-24Rs. 7,00,000 (under New tax regime)Rs. 25,000
2023-24Rs. 5,00,000 (under Old tax regime)Rs.12,500
2022-23Rs. 5,00,000Rs. 12,500
2021-22Rs. 5,00,000Rs. 12,500
2020-21Rs. 5,00,000Rs. 12,500
2019-20Rs. 5,00,000Rs. 12,500
2018-19Rs. 3,50,000Rs. 2,500
2017-18Rs. 3,50,000Rs. 2,500
2016-17Rs. 5,00,000Rs. 5,000
2015-16Rs. 5,00,000Rs. 2,000
2014-15Rs. 5,00,000Rs. 2,000
2013-14Rs. 5,00,000Rs. 2,000

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 7 lakh, you can claim a full tax rebate up to Rs 25,000 under the new tax regime and in case of the old tax regime, 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.

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.

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

Yes, rebate u/s 87A is available on sale of long-term capital assets, but it is not applicable in case of long-term equity shares and mutual funds i.e. on Long Term Capital Gains from equity or others as specified under section 112A.

How to claim rebate u/s 87A while filing my ITR with ClearTax?

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 us, you need not worry about claiming a rebate u/s 87A. Our software automatically allows the benefit to you with 100% accuracy.

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Quick Summary

The tax rebate under Section 87A allows taxpayers to reduce their income tax liability if their total income does not exceed specified thresholds. The rebate amount and eligibility criteria have changed over the years under different tax regimes. Calculation of rebate involves determining the excess income, tax on total income, and applying the rebate accordingly. Rebate can cover various types of income tax liabilities.

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