A tax rebate u/s 87a provides financial relief to individuals, by reducing or eliminating their income tax liability. This allows taxpayers earning below a specific threshold to avoid additional tax payments and retain more of their earnings. Governments introduce tax rebates as a way to promote financial well-being. This supports economic stability, ensuring that essential income remains in the hands of those who need it the most.
What is an Income Tax Rebate Under Section 87A?
An Income Tax Rebate under Section 87A is a tax benefit available to individual taxpayers, allowing them to reduce their tax liability if their total income falls within a specified limit. This rebate is applicable only to resident individuals. This is deducted directly from the total tax payable before the final tax liability is calculated.
Under the new tax regime, individuals with an income of up to ₹7,00,000 currently receive a rebate of ₹25,000. However, from the financial year 2025-26, the government has increased this limit. Individuals earning up to ₹12 lakh can claim a rebate of ₹60,000. In contrast, under the old tax regime, the rebate remains unchanged at ₹12,500 for individuals with an income of up to ₹5,00,000. However, this rebate does not apply to income taxed at special rates, such as capital gains or lottery winnings.
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 rebates 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) (AY 2023-24) |
Amount (in INR) (AY 2024-25) |
| 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) |
15,000 (Since the taxable income is up to INR 7,00,000) |
| Tax Payable after h.e.c at 4% | 23,900 | Nil |
FAQs
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.
Hey @HarshitShah
Senior citizens (above 60 years and below 80 years) are eligible to claim income tax rebate under section 87A. Below mentioned is the way in which the calculation of taxable income will take place:
Hope this helps!