Tax Rebate under Section 87A as per Union Budget 2024

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?

A tax rebate is offered to the resident individual taxpayer₹ having taxable income of up to ₹7 lakhs under the Section 87A of the Income Tax Act, 1961. As per the Union Budget 2024, the rebate for the new tax regime stays same as the Union Budget 2023. 

For FY 2024-25 (AY 2025-26), the rebate limit will continue as before i.e. up to ₹7,00,000 under the new tax regime.

This means that a resident individual with taxable income up to ₹7,00,000 can avail of a rebate which is lower of the following: 

• Payable income tax on total income, OR

• Amount of up to ₹25,000.

Under the old tax regime, the rebate limit remains the same at ₹5,00,000, and the rebate amount is ₹12,500.

Example of Rebate u/s 87A:

*The Union Budget 2024 announces an increase in the standard deductions to ₹75,000 from ₹50,000.

**You can claim a tax rebate of maximum ₹25,000 under the new tax regime for FY 2024-25.

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 in Union Budget 2024:

• The Union Budget 2024 was announced on 23 July 2024, which keeps the tax rebate same as Union Budget 2023.

• 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 under the old tax regime.

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 ₹5 lakh as per the old tax regime.

• The tax rebate is limited to ₹12,500 under old tax regime and ₹25,000 as per the new tax regime for FY 2024-25 (AY 2025-26). 

• If your total tax payable is below these limits, you will not have to pay any tax.

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

• Super senior citizens (aged above 80 year) 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:

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:

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.