The taxes paid by the citizens of India are utilized to improve the country’s economy. The income tax system in India is progressive hence the Income Tax Department has created different tax slab rates for individuals based on their total income. To ensure taxpayers with low taxable income do not face the burden of paying more taxes, the government has also set up provisions like claiming income tax rebate u/s 87A to reduce the tax liability.
What is an Income Tax Rebate Under Section 87A?
Rebate under section 87A of the Income Tax Act helps taxpayers to reduce their tax liability. Resident individuals with a net taxable income less than or equal to INR 5,00,000 can claim a tax rebate of a maximum of INR 12,500 or the amount of tax payable, whichever is lower under both tax regimes.
What are the Eligibility Criteria to Claim a Rebate u/s 87A?
Individuals can claim rebate u/s 87A of the Income Tax Act if they satisfy these conditions:
- Only resident individuals can claim a rebate under this section.
- The total taxable income after deductions under Chapter VI-A (if applicable) must not be more than INR 5,00,000 till AY 2023-24.
- However, the limit has been increased from INR 5,00,000 to INR 7,00,000 under the new tax regime from AY 2024-25.
- A rebate can be applied to the total tax liability before adding health and education cess. The rebate claim shall be lower of the total tax payable and limits specified for 87A.
- Senior citizens and super senior citizens can also claim rebate under this section.
- Rebate under 87A is available under both the tax regimes i.e. old as well as new.
Note: Rebate u/s 87A can not be availed against income from long-term capital gains on equity shares or equity-oriented mutual funds (Section 112A)
How to calculate Tax Rebate u/s 87A?
Following are the steps to calculate the tax rebate amount:
- To calculate the rebate, first calculate the gross total income from all the sources in a financial year
- Now reduce the gross total income by claiming all the eligible chapter VIA deductions
- Arrive at the net taxable income after claiming the tax deductions
- If the net taxable income is up to INR 5,00,000 under old regime or INR 7,00,000 under new regime(from AY 2024-25) then the taxpayer is eligible to claim a rebate under section 87A
- The maximum tax rebate available under section 87A is INR 12,500 under old regime and INR 25,000 under new regime(from AY 2024-25).
Let’s take an example to understand the calculations better:
Mr Kumar, aged 45 years, is a salaried resident and has opted for a new tax regime.
|Particulars||Amount (in INR)
|Amount (in INR)
|Gross Total Income||6,00,000||6,00,000|
|Deductions||Not Applicable||Not Applicable|
|Net Taxable Income||6,00,000||6,00,000|
|Tax Payable before cess||22,500||15,000|
|Tax Rebate u/s 87A||Not Available
(Since the taxable income is more than INR 5,00,000)
(Since the taxable income is up to INR 7,00,000)
|Tax Payable after h.e.c at 4%||23,900||Nil|
No, only resident individuals can claim a rebate under this section. Companies and HUF cannot avail this benefit.
No, the tax rebate is calculated and availed before adding health and education cess to the total tax liability.
No, only resident individuals can claim rebate u/s 87A.
Rebate can be availed of Total tax liability or INR 12,500 whichever is lower. If the taxpayer opts for a new tax regime, then the limit applicable shall be INR 25,000 from FY 2023-24.