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Section 87A: Income Tax Rebate under Section 87A

Updated on: 23 May, 2024 04:04 PM

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 2023-24) 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.)

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. 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 the following income particulars -

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, 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:

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.

Finding it hard to calculate taxes manually? Check out our Free Income Tax Calculator!

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%.

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 end-to-end taxation services right from tax planning to ITR filing. Get online CA 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 citizens) 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
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
This 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 To claiming the relief individual is required to fill out 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 the 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 the Total Taxable Income of the assessee
Rebate is accorded for the current year’s income Relief is related to past year income received in the current year
A calculation of past year taxes is not required for claiming a rebate in the current year Relief in the current year is sought upon tax calculation of previous years
A resident individual is entitled to a 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 the basic exemption limit. Currently, this limit stands at Rs. 3,00,000 under the 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 the 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 the 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 income as well.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of 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.