What is the Tax Rebate Under Section 87A of Income Tax Act?
The Income Tax Act of 1961 offers several provisions that provide tax relief to individuals to lower their tax liabilities. One such provision is Section 87A of the Income Tax Act. Individuals can enjoy a tax rebate under Section 87A when they earn a net taxable income within ₹ 5,00,000 in a given financial year. Eligible candidates can claim a tax rebate of up to ₹ 12,500 or the total tax payable in an assessment year, or whichever is lower (before adding cess).
If you are curious to know more about this section, keep reading!
What Are the Eligibility Criteria to Avail Tax Rebate Under Section 87A?
The recent Union Budget of 2022 has not altered the provision of availing a tax rebate under Section 87A.
Individuals need to meet the eligibility criteria to avail tax rebate under Section 87A:
The taxpayer needs to be an Indian citizen.
An individual’s net taxable income must not be above ₹ 5,00,000 after deduction under Section 80D, 80C, etc., as specified under Chapter VI-A.
Individuals (aged less than 60 years), senior Indian residents aged more than 60 years but less than 80 years can claim a tax rebate under this Section.
Super senior Indian residents aged more than 80 years do not qualify to claim a tax rebate under this Section.
- From Assessment year 2024-25, a maximum rebate of Rs. 25,000 is allowed under section 87A, If the total income of a resident individual, who is opting for the new tax scheme under Section 115BAC(1A), is up to ₹7,00,000.
Besides, before adding 4% of health and education cess, this tax rebate applies to the total tax payable in a given assessment year.
Tax Liabilities Against Which Individuals Can Claim Rebate Under Section 87A
Individuals can avail a tax rebate against the following tax liabilities under Section 87A:
- Individuals can claim a tax rebate under this Section on their income taxable according to the income tax slab rate.
- Assessee can claim a tax rebate on the following capital gains:
- Long-term capital gains as specified under Section 112 - This applies when an individual sells a capital asset other than an equity-oriented mutual fund scheme or listed equity shares. Individuals must note that they cannot adjust tax payable on LTCG on equity-oriented mutual fund schemes and equity shares.
- Short-term capital gains as specified under Section 111A - This applies to equity-oriented mutual fund schemes and listed equity shares. The short-term capital gain is taxed at a flat rate of 15%.
What Is the Procedure to Claim Tax Rebate Under Section 87A?
Besides knowing what the tax rebate under Section 87A is and its eligibility parameters, individuals need to learn the procedures to enjoy a tax rebate under this Section.
So, take a look at the following process:
- Step 1: Individuals need to evaluate their gross annual income.
- Step 2: Subtract the tax deductions claimed against tax savings investments to obtain the net taxable income.
- Step 3: Mention the tax deductions and gross income while filing Income Tax Returns.
- Step 4: If individuals’ total earnings in a given financial year are below ₹ 5,00,000,(or below ₹7,00,000, for A.Y. 24-25 under new tax regime) they can claim a tax rebate under Section 87A.
How to Calculate Tax Rebate Under Section 87A of the ITA?
To streamline this process of claiming rebate under Section 87A, take a look at a simple example:
Mr. Alok is below 60 years and earns a gross annual income of ₹ 6,50,000 lakhs in 2022-23. He decides to remain in the old tax regime. He has invested in schemes to enjoy a tax deduction of up to ₹ 1,50,000 under Section 80C. Thus, his net taxable income after the deduction in 2022-23 is ₹ 5,00,000.
We know that individuals can further claim a tax rebate under 87A up to ₹ 12,500, or the total amount of tax payable, whichever is lower. So, the total tax payable in an assessment year is:
| Particulars | Amount |
|---|---|
| Gross Annual Income | ₹ 6,50,000 |
| Deduct: Deduction under Section 80C* | ₹ 1,50,000 |
| Net Taxable Income (After Deduction) | ₹ 5,00,000 |
| Income Tax Payable in a Financial Year 2022-23 (5% for income ranging from ₹2,50,000- ₹5,00,000) | ₹ 12,500 |
| Deduct: Tax Rebate under 87A | ₹ 12,500 |
| Total Tax Payable in an Assessment Year(2022-23) | NIL |
| Add: 4% of Health and Education Cess | - |
What Is the Maximum Tax Rebate Limit From FY 2022-23 to 2013-14?
Take a look at the following table illustrating the maximum tax rebate limit along with the net taxable income in each financial year:
| Financial Year | Net Taxable Income | Tax Rebate Limit under Section 87A |
| 2021-2022 | ₹ 5,00,000 | ₹ 12,500 |
| 2020-2021 | ₹ 5,00,000 | ₹ 12,500 |
| 2019-2020 | ₹ 5,00,000 | ₹ 12,500 |
| 2018-2019 | ₹ 3,50,000 | ₹ 2,500 |
| 2017-2018 | ₹ 3,50,000 | ₹ 2,500 |
| 2016-2017 | ₹ 5,00,000 | ₹ 5,000 |
| 2015-2016 | ₹ 5,00,000 | ₹ 2,000 |
| 2014-2015 | ₹ 5,00,000 | ₹ 2,000 |
| 2013-2014 | ₹ 5,00,000 | ₹ 2,000 |
Thus, going through these pointers mentioned above will simplify the process of availing a tax rebate under Section 87A and reduce the tax burden.
Frequently Asked Questions
Are HUFs and firms eligible to claim a tax rebate under Section 87A?
No, only individuals who are residents of India can claim tax rebates under Section 87A.
Is Section 87A applicable under both old and new tax regimes?
Yes, Section 87A is valid under both old and new tax regimes.
Is surcharge levied while computing tax rebate under Section 87A?
No, an individual claiming tax rebate under Section 87A must earn a net taxable income up to ₹ 5 lakhs (or below ₹7 lakh for A.Y. 24-25 under new tax regime) , and the surcharge is applicable when he or she earns an income above ₹ 50 lakhs but below ₹ 1 crore.