Tax Rebate under Section 87A

Tax Rebate under Section 87A is a provision in the Indian Income Tax Act that offers relief to individual taxpayers by reducing their tax liability. This rebate is available to resident individuals whose total taxable income is Rs. 7,00,000 under the new tax regime and Rs. 12,500 for income up to Rs 5,00,000. As per Section 87A, eligible taxpayers can claim a rebate of up to a certain amount from the total tax payable, thereby reducing the tax burden.

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Let us learn about this section in detail for the Financial Year 2024-25 (AY 2025-26).

What is Section 87A Rebate for Financial Year (FY) 2024-25 and Assessment Year (AY) 2025-26?

Section 87A of the Income Tax Act, 1961, provides for a rebate in income tax payable for resident individuals with taxable income up to a certain limit. For FY 2024-25 (AY 2025-26), the rebate limit will continue as before i.e. up to Rs. 7,00,000 under the new tax regime.

This means that a resident individual with taxable income up to Rs. 7,00,000 can avail of a rebate of Rs. 25,000 or the amount of tax payable, whichever is lower. Under the old tax regime, the rebate limit remains the same at Rs. 5,00,000, and the rebate amount is Rs. 12,500.

Example of Rebate u/s 87A:

(FY 2024-25) Income Source Amount under Old Tax Regime Amount under New Tax Regime
Gross Total Income Rs. 7 lakhs Rs. 7.5 lakhs
(-) Standard Deductions Rs. 50,000 Rs. 50,000
(-) Section 80C Deductions Rs. 1.5 lakhs --
Total Taxable Income Rs. 5 lakhs Rs. 7 lakhs
Income Tax Payable Rs. 12,500 Rs. 25,000
(-) Section 87A Rebate Rs. 12,500 Rs. 25,000
Tax payable NIL NIL

What is the Amount of Rebate u/s 87A for FY 2024-25?

For the Financial Year 2024-25, the amount of tax rebate available under Section 87A of the Income Tax Act, 1961, will continue as before, which is as follows:

Tax Rebate under the Old Tax Regime:

  • Individuals opting for the old tax regime with a taxable income of up to Rs. 5 lakh can claim a tax rebate of Rs. 12,500 under Section 87A.

  • The rebate will be the lower of 100% of income-tax liability or Rs. 12,500.

  • The tax liability must be lower than Rs. 12,500 to claim this rebate.

Tax Rebate under the New Tax Regime:

  • A maximum rebate of Rs. 25,000 is applicable to resident individuals opting for the new tax regime under Section 115 BAC(1A) with a total income of up to Rs. 7 lakhs.

  • Marginal relief can be claimed if the total income is more than Rs. 7 lakhs and the tax payable is higher than the difference between the total income and Rs. 7 lakhs.

  • This rebate covers the gap between the tax payable on the total income and the amount by which it exceeds Rs. 7 lakhs.

What are the Steps to Claim Rebate u/s 87A Rebate in ITR Filing?

To claim a tax rebate under Section 87A for the financial year 2024-2025, follow these steps:

Step 1: Determine your Gross Total Income for the financial year 2024-2025.

Step 2: Subtract any tax deductions you are eligible for, such as those for life insurance policies, investments, and other tax-saving instruments.

Step 3: Calculate your total income after subtracting the tax deductions available under IT Act, 1961.

Step 4: Declare your Gross Income and tax deductions while filing your Income Tax Return (ITR).

Step 5: After filing your ITR, you can claim a tax rebate under Section 87A.

*Note: the maximum tax rebate available under Section 87A in the old tax regime for the financial year 2024-25 (Assessment Year 2025-26) is Rs. 12,500.
**You can Claim deductions under Section 80C for investments like ULIPs, 80D for medical insurance, 80CCD for NPS contributions, and 80G for donations to reduce your total income.

Invest & Save upto ₹46,800 per annum in taxInvest & Save upto ₹46,800 per annum in tax

What is Eligibility Criteria to Claim Income Tax Rebate u/s 87A for FY 2024 – 25 (AY 2025 – 26)? 

You can claim a tax rebate under Section 87A of the Income Tax Act if you meet the following conditions:

  • The taxpayer must be an individual resident in India.

  • Your total income after reducing the deductions under Chapter VI-A (Section 80C, 80D, and so on) should not exceed Rs 5 lakh.

  • 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.

  • Senior citizens (aged 60 to 80 years) are eligible to claim the rebate.

  • Super senior citizens (aged above 80 years) are not eligible to claim the rebate.

Illustration of Tax Rebate u/s 87A for FY 2024-25 (AY 2025-26)

Some examples of the income tax rebate allowed to you under Section 87A for Financial Year 2024 – 2025 and AY 2025 – 26 are as follows:

Total Annual Income (Rs.) Tax Payable before Cess Rebate Under Section 87A Tax Payable+4% Cess
Rs. 2.65 lakhs Rs. 750 Rs. 750 0
Rs. 2.7 lakhs Rs. 1,000 Rs. 1,000 0
Rs. 3 lakhs Rs. 2,500 Rs. 2,500 0
Rs. 3.5 lakhs Rs. 5,000 Rs. 2,500 Rs. 2,500 + cess**

Example:

For the Financial Year 2024-25 (Assessment Year 2025-26), let's understand the tax liability of Mr. Mohan, a 61-year-old retired person with a monthly pension of Rs 5,000 and Long Term Capital Gains (LTCG) from equity-oriented funds is Rs 4,70,000.

Total Pension Income: Rs. 5,000 x 12 = Rs 60,000

LTCG on Equity-oriented Funds: Rs. 4,70,000

Since Mr. Mohan is above 60 years but below 80 years, his basic exemption limit is Rs 3 lakh. The basic exemption limit should first be adjusted against normal income other than LTCG on equity-oriented funds.

After adjusting the basic exemption limit with the pension income (Rs. 3 lakh - Rs. 60,000), we are left with a balance of Rs 2.4 lakh. This balance will then be adjusted against the LTCG on equity-oriented funds, leaving us with a balance LTCG of Rs. 2.3 lakh (Rs. 4.7 lakh - Rs. 2.4 lakh).

LTCG on equity-oriented funds is taxable at 10% on the amount exceeding Rs 1 lakh. Therefore, the tax will be levied on Rs 1.3 lakh (Rs. 2.3 lakh - Rs. 1 lakh) at 10%, resulting in a tax liability of Rs 13,000.

**Please note that the rebate under Section 87A is not applicable against tax on LTCG of equity-oriented funds (Section 112A). Therefore, Mr. Mohan’s final tax liability would be Rs. 13,000 plus health & education cess at 4%, which amounts to Rs. 13,520.

What is the Rebate Limit under Section 87A for Previous Financial Years?

The limits of income tax rebate under Section 87A of the IT Act, 1961, for previous financial years are mentioned below:

Financial Year Total Income Taxable Limit  Rebate under Section 87A
2024-25 New Tax Regime: Rs. 7 lakhs Rs. 25,000
Old Tax Regime: Rs. 5 lakhs Rs. 12,500
2023-24 New Tax Regime: Rs. 7 lakhs Rs. 25,000
Old Tax Regime: Rs. 5 lakhs Rs. 12,500
2022-23 Rs. 5 lakhs Rs. 12,500
2021-2022 Rs. 5 lakhs Rs. 12,500
2020-2021 Rs. 5 lakhs Rs. 12,500
2019-2020 Rs. 5 lakhs Rs. 12,500
2018-2019 Rs. 3.5 lakhs Rs. 2,500
2017-2018 Rs. 3.5 lakhs Rs. 2,500
2016-2017 Rs. 5 lakhs Rs. 5,000
2015-2016 Rs. 5 lakhs Rs. 2,000
2014-2015 Rs. 5 lakhs Rs. 2,000
2013-2014 Rs. 5 lakhs Rs. 2,000

What are the Things to Remember Before Availing Rebate Under Section 87A?

Before availing the rebate under Section 87A, it is important to remember the following points:

  1. Eligibility Criteria:

    • Only resident individuals are eligible to avail of the rebate.

    • Senior citizens aged 60 to 79 years can avail the rebate.

    • Super senior citizens aged 80 years and above are not eligible for the rebate.

  2. Rebate Amount:

    • The rebate can be applied to the total tax before adding the health and education cess of 4%.

    • The amount of rebate will be the lower of the limit specified under Section 87A or the total income tax payable (before cess).

  3. Tax Regime:

    • The rebate is available under both the old and the new tax regimes.

  4. Applicable Tax Liabilities:

    The rebate can be claimed against tax liabilities on:

    • Normal income is taxed at the slab rate.

    • Long-term capital gains under Section 112 of the Income Tax Act (excluding listed equity shares and equity-oriented schemes of mutual funds).

    • Short-term capital gains on listed equity shares and equity-oriented schemes of mutual funds under Section 111A, taxed at a flat rate of 15%.

  5. Non-Applicable Tax Liabilities:

    • The rebate cannot be adjusted against tax on long-term capital gains on equity shares and equity-oriented mutual funds under Section 112A.

Conclusion

The tax rebate under Section 87A is a beneficial provision for resident individuals, including senior citizens aged between 60 and 79 years, to reduce their tax liability. By reducing the tax liability of eligible taxpayers, Section 87A encourages compliance and supports economic well-being, ultimately contributing to a fairer and more inclusive tax system.

Section 87A - Frequently Asked Questions

  • Is the surcharge considered when calculating the Rebate under Section 87A?

    The Rebate under Section 87A is available to those with a taxable income below INR 5 Lakhs. Since a surcharge is applied when taxable income exceeds INR 50 Lakhs, an individual claiming this section will not be subject to a surcharge.
  • Can the 87A rebate be claimed on agricultural income?

    Yes, resident individuals with agricultural income are eligible to claim the tax rebate under Section 87A.
  • What is the income tax rebate under section 87A AY 2025-26?

    The income tax rebate under Section 87A for AY 2023-24 the rebate amount is Rs. 12,500 for resident individuals with taxable income up to Rs. 5,00,000.
  • What is 87A limit 2024?

    The Section 87A rebate limit for AY 2025-26 is Rs. 5,00,000 under the old tax regime and Rs. 7,00,000 under the new tax regime. This means that you are eligible for the rebate if your taxable income is within the specified limit.
  • Who is eligible for rebate under section 87A?

    The rebate under Section 87A of the Income Tax Act, 1961, is available to the following individuals:
    • Resident individuals

    • Whose total income does not exceed Rs. 5 lakhs (old tax regime) or Rs. 7 lakhs (new tax regime)

  • How do I claim my Section 87A rebate?

    Follow the steps mentioned below to claim the Section 87A rebate:
    • Ensure that your total income falls within the specified limit to be eligible for the rebate.

    • Calculate your taxable income after considering all eligible deductions and exemptions.

    • Calculate your tax liability based on the applicable tax rates.

    • Calculate the rebate amount, which is the lower of the actual tax calculated or ₹12,500.

    • When filing your Income Tax Return (ITR), make sure to fill out the necessary details and claim the Section 87A rebate.

    • Double-check all the information provided in your ITR form to ensure accuracy.

    • Submit your ITR online through the official income tax e-filing portal or physically, as applicable.

    • Once your ITR is processed and verified by the tax authorities, if you are eligible for the rebate, the rebate amount will be deducted from your total tax liability.

  • What is a rebate limit?

    A rebate is a reduction in the amount of tax that you have to pay. The rebate limit is the maximum amount of rebate that you can claim.

    In India, the rebate limit for Section 87A is Rs. 12,500 for the old tax regime and Rs. 25,000 for the new tax regime in financial year 2024-25.

  • Can non-residential Indians avail the tax deduction benefit provided under Section 87A of the Income Tax Act, 1961?

    Answer: No, only Indian residents are eligible to avail of the tax rebate offered under Section 87A.
  • Define total income?

    Answer: The total income of an individual is per head total income that includes the salary of an individual, their income from property/house, income from profession & business, capital gains income, income from different other sources.
  • Are senior citizens eligible to get a tax rebate under Section 87A?

    Answer: Yes, the senior citizens are eligible to avail of tax rebate under Section 87A. However, those who are 60 years old but are less than 80 years can get this benefit.
  • Can this income tax rebate be claimed by any person?

    Answer: The income tax rebate offered under Section 87A can be availed by an individual who is an Indian resident. The companies and Hindu Undivided Families (HUFs) cannot avail themselves of its benefits.
  • Please mention the rebates allowed in previous years?

    Answer: A table of allowed rebates is given below:
    Financial Year Total Income Taxable Limit  Rebate under Section 87A
    2021 - 2022 Rs. 5,00,000 Rs. 12,500
    2020 - 2021 Rs. 5,00,000 Rs. 12,500
    2019 - 2020 Rs. 5,00,000 Rs. 12,500
    2018 - 2019 Rs. 3,50,000 Rs. 2,500
    2017 - 2018 Rs. 3,50,000 Rs. 2,500
    2016 - 2017 Rs. 5,00,000 Rs. 5,000
    2015 - 2016 Rs. 5,00,000 Rs. 2,000
    2014 - 2015 Rs. 5,00,000 Rs. 2,000
    2013 - 2014 Rs. 5,00,000 Rs. 2,000

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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