As per Income Tax Act in India, if your taxable income is within a prescribed limit, then you do not have to pay any income taxes and the section which has this provision is 87A. This was introduced in the year 2013 and has been updated in 2019 and again recently to increase the prescribed limit of income. The rebate under section 87a has been a boon for many individuals who fall under the lower income slabs of the income tax act in India. If you are wondering how you can claim tax rebate section 87a of the income tax Act, then this article can be of immense help to you. In this article, you will get to know about the different features, and criteria of section 87a.
What Are the Eligibility Criteria to Avail Tax Rebate Under Section 87A?
For claiming a tax rebate under section 87a, you need to fulfil certain criteria, which are mentioned below –
- You need to be a resident individual in India, which is the first criterion for claiming this rebate. The NRIs are not eligible for availing of this benefit. There is another criterion, that only senior citizens and individuals below the age of 60 years can avail of this rebate, not the super senior citizens who fall over the age group of 80 years.
- If you are following the old regime of income tax, then your taxable income after allowing deductions under chapter VI-A has to be within the prescribed limit of Rs. 5 lakhs in the financial year for which the tax has to be computed.
- If you are following the new tax regime, which is now the default one, then your taxable income has to be within the prescribed limit of Rs. 7 lakhs.
- Tax rebate u/s 87a is applied to the total tax payable before adding the 4% health and education cess.
So, if you qualify for all the above criteria, then only you can claim the tax rebate under section 87A.
Also Read: Income tax act 1961 of India
Tax Liabilities Against Which Individuals Can Claim Rebate Under Section 87A
In the above section, it has been mentioned that the tax rebate under section 87A is available against income up to a prescribed limit. So, how this prescribed limit is defined, you must be wondering, aren’t you? Whether it includes income from all five heads or a few of them.
So, this rebate u/s 87A is available on –
- Income from salary, house property, and other income sources and business profession.
- However, for income from capital gains, there are certain criteria which need to be adhered to. So, income generated from the sale of capital assets (long-term) except equity shares and equity mutual funds can be included as income eligible for tax rebate under section 87A while short-term capital gains from equity shares (listed) and equity mutual funds can be included where the tax payable is 15% flat.
So, this means, you can claim an 87A rebate for every income except for long-term capital gains from equity shares and equity-oriented mutual fund schemes, even if your taxable income is within the prescribed limits.
For instance, suppose, your annual income is Rs. 3 lakhs and you sold equity shares worth Rs. 2 lakhs from where you made a profit of Rs. 1.5 lakh, but on this Rs. 50000, you have to pay long-term capital gain taxes, and Rs. 1 lakh is excluded as per long-term capital gains tax rules.
How to Calculate Tax Rebate Under Section 87A of the ITA?
Let’s take an example to understand how you can calculate the tax rebate under section 87a of the income tax act.
Old Regime
| Source of Income (FY 2022-23) | Income (Rs.) |
|---|---|
| Total Annual Income (Salary + Rent from House Property) | 700000 |
| Standard Deduction | 50000 |
| Net Income q | 650000 |
| Deductions u/s 80 C and 80 D | 150000 |
| Taxable Income | 500000 |
| Income Tax (5% on Rs. 2.5 lakhs as per old tax regime slab) | 12500 |
| Tax Rebate u/s 87A | 12500 |
| Tax Payable | 0 |
New and Default Tax Regime
| Source of Income (FY 2024-25) | Income (Rs.) |
|---|---|
| Total Annual Income (Salary + Rent from House Property) | 750000 |
| Standard Deduction | 50000 |
| Net Income q | 700000 |
| Deductions u/s 80 C and 80 D | - |
| Taxable Income | 700000 |
| Income Tax (5% on Rs. 3 lakhs + 10% on Rs. 1 lakhs)( as per new tax regime slab)( Rs. 15000+Rs. 10000) | 25000 |
| Tax Rebate u/s 87A | 25000 |
| Tax Payable | 0 |
Prescribed limits of Income
- Under the new and default tax regime, the threshold of income for tax rebates under section 87A has been increased to Rs. 25000 from Rs. 12500 for FY 2022-23 and assessment year 2023-24. So, the prescribed income limit under this regime is Rs. 7 lakhs.
- While for the old tax regime, where one can avail the deductions and exemptions, the threshold limit is still Rs. 12500 and the prescribed income limit is Rs. 5 lakhs.
What Is the Procedure to Claim a Tax Rebate Under Section 87A?
To claim the 87A rebate you need to follow the steps mentioned below –
- Compute your gross income (including salary, rental income, other miscellaneous income and capital gains except for long-term capital gains from equities and equity mutual funds)
- Deduct standard deduction in case you have salary income or pension income. This will give you the net income
- Then you need to reduce the deductions availed (only under the old regime) to find out the taxable income
- Then calculate the tax as per tax slabs and then deduct the tax rebate if you are eligible for the same.
- Now declare all your incomes and investments for deductions and exemptions in your ITR
- Then you can claim the tax rebate under section 87A if your income doesn’t surpass the prescribed limit of income.
What Is the Maximum Tax Rebate Limit From FY 2024-25 to 2013-14?
Since the inclusion of section 87A in 2013, the maximum rebate under this section has changed over time. Here is a snapshot of the same in a chronological manner –
| FY | Income Limit (Old Regime) | Tax Rebate | Income Limit (New Tax Regime) | Tax Rebate |
|---|---|---|---|---|
| 2024-25 | Rs. 5,00,000 | Rs. 12,500 | Rs. 7,00,000 | Rs. 25,000 |
| 2022-23 | Rs. 5,00,000 | Rs. 12,500 | Rs. 7,00,000 | Rs. 25,000 |
| 2021-22 | Rs. 5,00,000 | Rs. 12,500 | Rs. 5,00,000 | Rs. 12,500 |
| 2020-21 | Rs. 5,00,000 | Rs. 12,500 | Rs. 5,00,000 | Rs. 12,500 |
| 2019-20 | Rs. 5,00,000 | Rs. 12,500 | NA | NA |
| 2018-19 | Rs. 3,50,000 | Rs. 2,500 | NA | NA |
| 2017-18 | Rs. 3,50,000 | Rs. 2,500 | NA | NA |
| 2016-17 | Rs. 5,00,000 | Rs. 5,000 | NA | NA |
| 2015-16 | Rs. 5,00,000 | Rs. 2,000 | NA | NA |
| 2014-15 | Rs. 5,00,000 | Rs. 2,000 | NA | NA |
| 2013-14 | Rs. 5,00,000 | Rs. 2,000 | NA | NA |
Disclaimer :
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
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