Section 87A: Income Tax Rebate under Section 87A

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 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 financial year FY 2023-24 (AY 2024-25).

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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 the following income particulars -

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

Since his TTI is below the threshold of Rs. 5,00,000, he is eligible for claiming rebate u/s 87A for FY 2022-23 and FY- 2023-2024.

Note: 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 the case of the new tax regime and Rs. 5 lakhs in case of the old tax regime.)

The taxes payable for the FY 2023-24 (AY 2024-25) under the old regime are as under:

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:

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)

*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 the 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%.

Section 87A Rebate on Special Rate Incomes

While individuals can claim 87A rebates on income from capital gains, such rebate is not allowed on long-term capital gains from the sale of listed equity shares or mutual funds. To be precise, incomes from online gaming, gambling, VDAs, etc, that are taxed at special rates will also not be eligible for section 87A rebate. However, income from short-term capital gains from equity shares is eligible for rebate u/s 87A.

LTCG from Equity shares and equity mutual funds

If an individual's total income has any long-term capital gain under section 112A from the sale of equity shares or equity-based mutual funds. Such an individual will not be eligible for a section 87A rebate on such income on both the old regime and the new regimne.

As per section 112A of the Income Tax Act, the gains from the sale of listed equity shares or equity mutual funds are taxed at 10% if the amount exceeds Rs. 1 lakh in a financial year.

For example, if a person's net taxable salary is Rs 3.3 lakh per year and they have LTCG from the sale of equity shares worth Rs 1.10 lakh, they must pay 10% tax on the LTCG, which is Rs 10,000, plus 4% cess, totaling Rs 1,040. Since the tax payable on the net taxable salary is Rs 4,000, which is below the Section 87A threshold, they can claim a rebate u/s 87A. Therefore, they only need to pay the Rs 1,040 as tax on the LTCG.

Rebate Under Other Capital Gains

In the case of long-term capital gains from other assets such as real estate, unlisted shares, or short-term capital gains from equity mutual funds or equity shares. Rebate u/s 87A can be claimed on other capital gains.

Rebate Under STCG from Equity Shares and Mutual Funds

There is no restriction on claiming section a rebate u/s 87A arising from the sale of equity shares and mutual funds. Therefore, you can claim a section 87A rebate on your short-term capital gains on equity shares and mutual funds.

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.

Things to Remember Before Availing Rebate Under Section 87A

Eligibility Criteria

• Resident Individuals: Only resident individuals are eligible to claim the rebate.
• Senior Citizens: Individuals aged 60 to 79 years can avail themselves of the rebate.
• Super Senior Citizens: Individuals aged 80 years and above are not eligible for this rebate.

Rebate Amount

• Calculation Basis: The rebate is applied to the total tax calculated before adding the 4% health and education cess.
• Maximum Rebate: The rebate amount will be the lower of:
  • The limit specified under Section 87A.
  • The total income tax payable (before cess).

Tax Regime

• Available Under Both Regimes: The rebate can be claimed under both the old and new tax regimes.

Applicable Tax Liabilities

You can claim the rebate against tax liabilities on:

• Normal Income: Taxed at the applicable slab rates.
• Long-Term Capital Gains: Taxed under Section 112 of the Income Tax Act (excluding gains from listed equity shares and equity-oriented mutual funds).
• Short-Term Capital Gains: Taxed at a flat rate of 15% under Section 111A for listed equity shares and equity-oriented mutual funds.

Non-Applicable Tax Liabilities

The rebate cannot be claimed against tax on long-term capital gains from:

• Equity shares.
• Equity-oriented mutual funds under Section 112A.

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 end-to-end taxation services right from tax planning to ITR filing. Get online CA Now!