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:
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.
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:
See the example below for rebate calculation under Section 87A.
For individuals below 60 years of age for AY 2022-23
Source of income (FY 2021-22) | 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.
Rebate against various tax liabilities
Section 87A rebate can be claimed against tax liabilities on:
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).
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:
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) |
2,70,000 | 1,000 | 1,000 | 0 |
3,60,000 | 3,000 | 3,000 | 0 |
4,90,000 | 12,000 | 12,000 | 0 |
12,00,000 | 1,72,500 | 0 | 1,79,400 |
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%.
For FY 2017-18 or FY 2018-19, the eligibility criteria to claim tax rebate under Section 87A were:
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) |
2,65,000 | 750 | 750 | 0 |
2,70,000 | 1,000 | 1,000 | 0 |
3,00,000 | 2,500 | 2,500 | 0 |
3,50,000 | 5,000 | 2,500 | 2,500+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
Financial Year | Limit on total taxable Income | Amount of rebate allowed u/s 87A |
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 |
No, this rebate is only allowed for resident individuals. Therefore, taxpayers qualifying as non-residents are not eligible for a rebate under 87A.
This rebate is only allowed to individuals. HUFs or firms, or companies cannot claim this rebate.
ClearTax e-filing software automatically gives the rebate while e-filing if you are eligible.
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.
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.
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.