Taxpayers in India can benefit from a rebate under Section 87A of the Income Tax Act, which reduces their overall tax liability. This provision is especially helpful for individuals in lower-income brackets, allowing them to save on taxes.
In this blog, we’ll cover:
- What is Section 87A?
- Eligibility for the rebate
- Rebate limits under the old and new tax regimes
- How the rebate works with calculations
- FAQs on Section 87A
What is Section 87A?
Section 87A of the Income Tax Act allows a tax rebate to resident individuals whose total income falls below a specified threshold. This rebate is a deduction from the tax payable, rather than a deduction from taxable income.
The rebate is available before considering cess (4%) and is limited to the lower of:
- 100% of the income tax payable, or
- A maximum limit as prescribed under the applicable tax regime.
Who is Eligible for the Rebate Under Section 87A?
To qualify for the tax rebate under Section 87A, you must meet the following criteria:
- You must be a resident individual (HUFs, firms, and companies are not eligible).
- Your total taxable income (after deductions under Chapter VI-A like Section 80C, 80D, etc.) should not exceed the prescribed limit.
- The rebate is applicable to both salaried individuals and self-employed individuals.
Rebate Limit Under the Old Tax Regime
For taxpayers opting for the old tax regime, the rebate under Section 87A is applicable if:
- Total income does not exceed ₹5,00,000
- Maximum rebate allowed: ₹12,500
This effectively means that individuals with taxable income up to ₹5 lakh have zero tax liability after claiming the rebate.
Rebate Limit Under Under the New Tax Regime (Section 115BAC) till FY 24-25
For individuals choosing the new tax regime:
- If total income does not exceed ₹7,00,000, the maximum rebate allowed is ₹25,000.
- If income exceeds ₹7,00,000, rebate is adjusted so that effective tax payable is only on income exceeding ₹7 lakh.
Rebate Limit Under Under the New Tax Regime (Section 115BAC) from FY 25-26
The maximum rebate available has been increased from ₹25,000 to ₹60,000 for resident individuals opting for new tax regime with an annual income of up to ₹12 lakh from FY 25-26.
How to Claim Section 87A Rebate?
- Calculate your total taxable income after deductions.
- Compute income tax as per the applicable slab rates.
- If your total income is within the prescribed limit, deduct the rebate amount from the tax payable.
- Apply cess (4%) on the remaining tax amount (if any).
- File your ITR and claim the rebate automatically while computing taxes.
Key Takeaways
- Section 87A provides relief to small taxpayers by reducing or eliminating their tax liability.
- Under the old regime, the rebate applies to incomes up to ₹5,00,000, while under the new regime, it extends to ₹12,00,000 from FY 25-26.
- If income slightly exceeds 12 lakh in the new regime, the rebate is adjusted to minimize tax liability by providing marginal relief for taxable income between ₹ 12 to 12.75 lakhs.
Frequently Asked Questions (FAQs)
1. Can an NRI claim a rebate under Section 87A?
No, only resident individuals can claim the rebate under Section 87A. NRIs are not eligible.
2. What happens if my income is slightly above ₹7 lakh under the new regime?
If your income exceeds ₹7 lakh, the rebate amount is reduced so that tax is payable only on the excess amount. If the income is significantly above ₹7 lakh, the rebate is not applicable.
3. Is Section 87A applicable to senior citizens?
Yes, senior citizens (aged 60-79 years) can claim the rebate if their total income is within the prescribed limit. However, super senior citizens (aged 80 and above) already have full tax exemption up to ₹5 lakh.
4. Does the rebate apply to capital gains or other incomes?
Yes, as long as the total taxable income (including capital gains, salary, business income, etc.) is within the limit, the rebate applies.
5. Can I claim Section 87A rebate if I choose the old tax regime?
Yes, the rebate applies under both tax regimes but with different income limits.
By understanding and utilizing Section 87A, taxpayers can significantly reduce their tax burden and optimize their financial planning. Stay informed and file your taxes correctly to maximize your benefits!
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