What Is Tax Rebate Under Section 87a

Tax Rebate Under Section 87A

In India, income tax is progressive: higher earners pay more, while
lower-income individuals pay less, easing the tax burden for
eligible taxpayers.

Written by : Daina Mathew

Reviewed by : Jasmeet Bedi

Jasmeet Bedi

2023-11-30

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9 minutes read

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Rebate u/s 87A was introduced by the Government of India in the year 2013-14, and offers benefits from your tax liability. Rebate under section 87A can be claimed when your taxable income does not exceed the prespecified limit for the given financial year. For example, for FY 2023-24, if your taxable income is up to ₹5,00,000, then you do not need to pay any taxes by claiming the benefit of rebate u/s 87A.

You can claim a maximum rebate of up to ₹12,500 under Section 87A of the Income-Tax Act for the financial year 2023-24.

The maximum amount of the 87A rebate has been amended from time to time. In the beginning, the maximum limit of tax rebate under Section 87A of the Income Tax Act was ₹2,000. In the Union Budget 2016, it was raised to ₹5,000. Furthermore, in 2017, it was raised ₹2,500 for the individuals whose net taxable income was up to ₹3,50,000. After the Union Budget 2019, the government increased the net taxable income to ₹5 Lakhs. The maximum limit of 87A rebate was also raised to ₹ 12,500. Whereas, if the individual has an income of up to ₹7,00,000 in FY 2024-25, then under the new tax regime, they will be eligible to avail themselves of the rebate of ₹25,000.

Table Of Content:

What is an Income Tax Rebate?

An income tax rebate can simply be understood as a form of refund on taxes that you receive from the Income Tax Department under certain circumstances. An individual is liable to receive a tax rebate in the event that he or she pays more taxes in a financial year than they owe to the government. In order to avail a tax rebate, you must make sure to accurately compute your tax liability and file your income tax returns within a particular time period.

What is Income Tax Rebate u/s 87A?

Rebate under section 87A provides a tax benefit to an individual taxpayer if his total taxable income does not exceed the threshold limit of ₹5,00,000 under the old tax regime and ₹7,00,000 under the new tax regime for a given financial year. It means if the total taxable income of any individual exceeds ₹5,00,000 or ₹7,00,000, respectively, they will not be able to avail themselves of the tax benefit under section 87A.

When was Section 87A Introduced?

The rebate under Section 87A was first proposed in 2013 and has been in effect for several years, with it being updated as recently as 2019. Under the latest provisions of Section 87A, any individual with an annual taxable income of up to ₹5,00,000 under the old tax regime is eligible for tax rebate of ₹12,500. This essentially translates to the fact that individuals with an annual income lower than ₹5,00,000 are entirely exempted from income tax and can effectively save income tax in India. At the same time, individuals under the new tax regime with an annual taxable income of ₹7,00,000 can avail themselves of the rebate of ₹25,000.

Rebate u/s 87A for FY 2023-24 AY(2024-25) 

In both the previous and current income tax structures, the rebate 87A for the FY 2021-22 and 2022-23 (AY 2022-23 and 2023-24) has remained consistent. However, starting from FY 2023-24, a shift in the tax slab rates in the new tax regime has led to a modification in the rebate threshold. Under the previous tax regime, residents with a taxable income of up to ₹5,00,000 are entitled to a tax rebate. Conversely, in the new income tax regime, individuals meeting the residency criteria and having a taxable income of up to ₹7,00,000 are eligible for this tax rebate.

Eligibility Criteria to Claim Income Tax Rebate u/s 87A for FY 2023-24 

Here are the eligibility criteria to claim the rebate u/s 87A of the Income Tax Act 1961:

  1. You can claim the rebate 87A only on the gross total tax liability before adding the health & education cess of 4%

  2. Only resident individuals are eligible to receive rebates of 87A.

  3. Besides, senior citizens (those between 60 and 80 years old) can claim the rebate under section 87A.

  4. However, the Super senior citizens above 80 years) are not eligible for the 87A rebate.

  5. The maximum amount you can claim as 87A rebate shall be either the limit specified under section 87A or the total tax liability before cess, whichever is lower.

  6. Section 87A rebate shall be available under old as well as new income tax regimes. Hence you can claim the rebate under section 87A for both FY 2017-18 and FY 2018-19.

Did You Know?

Section 87A rebate doesn't cover long-term capital gains from equity shares or equity-oriented mutual funds.

- Economic Times

Claim Settlement Ratio

How Can You Claim a Tax Rebate under Section 87A? 

As per Section 87A of Income Tax Section 1961, you can claim a rebate of ₹12,500 on your tax liability. Here are the steps involved in claiming this 87A rebate:

Step 1. You must calculate your gross total income from the previous financial year

Step 2. Subtract all the tax deductions claimed for tax-saving investments

Step 3. Now, you get your Gross Total Income after tax deductions. This is your taxable income for the financial year (or previous year)

Step 4. Then you must estimate your gross tax liability on the Gross Total Income, but make sure you do not add cess to the amount

Step 5. You're eligible to claim the 87A rebate on your gross tax liability before cess and arrive at the net tax liability

In case your total income is below ₹5 lakhs, the maximum rebate under section 87A for the AY 2020-21, i.e., ₹12,500, shall bring down your net tax liability to zero.

How to Calculate Rebate Under Section 87A for an Individual Below 60 Years of Age? 

Here is an example to show how is Section 87A rebate calculated for an ordinary individual resident taxpayer for FY 2019-20:
 

Sources of income (FY 2019-20)Income (₹)
Gross total income6,50,000
Less: Deduction u/s 80C1,50,000
Total income5,00,000
Income-tax (at 5% from ₹ 2.5 to 5 lakh)12,500
Less: Rebate under section 87A12,500
Net Tax payableNil

Here’s an in-depth example of calculation as per the new tax regime applicable from FY 2023-24:

Sources of income (FY 2023-24)Income (₹)
Gross total income7,00,000
Less: Deduction u/s 80C3,00,000
Total income4,00,000 
Income-tax 25,000
Less: Rebate under section 87A25,000 
Net Tax payableNil

Rebate u/s 87A for Previous Financial Years

The provision under Section 87A of the Income Tax Act, 1961, offers a rebate to individual taxpayers whose total income falls below a specified threshold. This rebate effectively reduces the tax liability of eligible taxpayers. However, understanding how this rebate applies to previous financial years is essential for taxpayers who might have missed claiming it in earlier assessments. Below listed are different FY tax rebates for you to explore:

Financial YearLimit on Total Taxable IncomeAmount of rebate allowed u/s 87A*
2023-2024

New Tax Regime: ₹7,00,000 

Old Tax Regime: ₹5,00,000

₹25,000

₹12,500

2022-2023₹5,00,000₹12,500
2021-22₹5,00,000₹12,500
2020-21₹5,00,000₹12,500
2019-20₹5,00,000₹12,500
2018-19₹3,50,000₹2,500 
2017-18₹3,50,000₹2,500
2016-17₹5,00,000₹5,000
2015-16₹5,00,000₹2,000
2014-15₹5,00,000₹2,000
2013-14₹5,00,000₹2,000

Three Things to Consider about Section 87A

The tax rebate offered under Section 87A can prove to be a great relief to various citizens across the country. However, here are a few points of note that a taxpayer must keep in mind before thinking about saving income tax in India under Section 87A:

1. This tax rebate under Section 87A cannot be availed by Non Residential Indians, which is NRIs.

2. The benefits of this tax rebate can also not be availed by Corporations, Firms or HUFs.

3. While seniors (aged 60 to 80) can avail this tax rebate, Super Seniors (aged 80 and above) cannot.

The tax rebate offered under Section 87A is certainly a useful means of saving income taxes in India during a financial year. However, it is just important to save taxes with crucial investments such as a life insurance policy that is both tax-saving and financially fruitful.

To avail a trusted life insurance plan to secure your family’s future and save taxes, look no further than Term Plans from Canara HSBC Life Insurance. Term insurance plan provides policyholders with various coverage and payout options as well as an array of useful add-on covers.

Final Thoughts 

The tax rebate offered under Section 87A is certainly a useful means of saving income taxes in India during a financial year. However, it is just important to save taxes with crucial investments such as a life insurance policy that is both tax-saving and financially fruitful.

To avail yourself of a trusted life insurance plan to secure your family’s future and save taxes, look no further than Term Plans from Canara HSBC Life Insurance. The term insurance plan provides policyholders with various coverage and payout options as well as an array of useful add-on covers.

Glossary:

  • Old Tax Regime: The traditional system before the new tax regime (2020), which offers deductions and exemptions available.
  • New Tax Regime: The new tax system that offers reduced tax rates but with fewer deductions.
  • Gross Income: The total earnings an individual or entity receives from all sources before any deductions or taxes are applied.
  • Net Taxable Income: The taxable income amount that is achieved by deducting permissible exemptions and deductions from gross income.
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Frequently Asked Questions Related to Section 87A

Non-resident Indians are not eligible to claim rebates under this section as only the taxpayers qualified as residents are permitted.

To calculate rebate under section 87A, calculate your gross income and subtract the available deductions under Sections 80C to 80U. Now, if your net taxable income is less than ₹5 lakhs, you are eligible for a rebate up to ₹12500 on the tax payable before health and education Cess.

 

You can claim a rebate under Section 87A while filing your tax return if you have already paid the taxes.

Yes, resident individuals earning from agricultural sources can also claim tax rebate u/s 87A.

Rebate under Section 87A is applicable to individuals with taxable income not exceeding ₹5,00,000. Conversely, a surcharge is imposed on taxable incomes surpassing ₹50,00,000. Consequently, individuals benefiting from this section will never incur a surcharge.

In 2024, the limit under Section 87A of the Income Tax Act determines that individuals with a taxable income of up to ₹5,00,000 under the old regime and ₹7,00,000 under the new regime are eligible for a rebate. This provision offers relief to taxpayers by reducing their tax liability if their income falls within this specified threshold.