To provide tax relief to the individual taxpayers who are in lower income brackets, the government of India has introduced tax rebate under section 87A of the Income tax act, 1961.
Tax rebate under section 87A will be available if conditions specified in it are satisfied by the taxpayer.
As per section 87A, the taxpayer must be a resident individual to get tax rebate. He can be an ordinary resident or not-ordinary resident. Which means tax rebate under section 87A is not applicable to non-resident individuals, resident/non-resident HUF or AOP or BOI or partnership firm or company or any taxpayer other than a resident individual.
The second and most important condition to get tax rebate under section 87A is total income or taxable income of the taxpayer.
The taxable income specified is 5,00,000 rupees for the financial year 2022-23 and 2023-24.
This means, a resident individual can claim tax rebate under section 87A if his total income for the financial year does not exceed 5,00,000 rupees.
From assessment year 2024-25 (financial year 2023-24) onwards, this limit has been increased from 5,00,000 rupees to 7,00,000 rupees for resident individuals who want to pay tax under alternative tax regime under section 115BAC(1A).
Eligibility for section 87A relief will be decided on the taxpayer’s Total or taxable income, not on gross total income.
You need to deduct all eligible deductions from section 80C to 80U under chapter VI-A from your total income. After calculating tax on total income but before charging cess, you should deduct tax rebate.
Table Showing deduction of rebate | ||
Sr. No | Particulars | Amount in INR |
1 | Income under the head salary | XXXX |
2 | Income under the head house property | XXXX |
3 | Income under the head profits from business or profession | XXXX |
4 | Income under the head capital gain | XXXX |
5 | Income under the head other sources | XXXX |
6 | Gross Total Income (1+2+3+4+5) | XXXX |
7 | Deduction U/s 80C to 80U | XXXX |
8 | Total Income (6-7) (Based on this amount section 87A eligibility will be decided.) | XXXX |
9 | Tax Payable on Total Income | XXXX |
10 | Income Tax Rebate U/s 87A | XXXX |
11 | Total Tax Payable ( 9-10) | XXXX |
12 | Education Cess and SHEC @4% | XXXX |
13 | Actual Tax Payable if any (11+12) | XXXX |
If serial number 8 (Total Income) is less than 5 lakh rupees for the year 2022-23, then you will be eligible to claim income tax rebate under section 87A.
Amount of income tax rebate under section 87A
If the above conditions are satisfied and the resident individual is not opting for an alternative tax regime under section 115BAC(1A), then the resident individual will be eligible for a tax rebate up to 100% of income tax or 12,500 rupees whichever is lower. This means tax rebate is up to 12,500 rupees.
In case the resident individual is opting for an alternative tax regime under section 115BAC(1A), the amount of tax rebate under section 87A is 100% of income tax or Rs 25,000, whichever is lower. It is applicable from assessment year 2024-25 (financial year 2023-24) onwards.
Marginal Relief to taxpayer under section 87A
From assessment year 2024-25 (financial year 2023-24), rebate under section 87A is subject to marginal relief.
If net income exceeds 7,00,000 rupees but does not exceed 7,27,770 rupees, then income tax on such income cannot exceed the amount by which the net income exceeds 7,00,000 rupees.
Example showing calculation of income tax rebate U/S 87A
Here is a table showing income tax rebate calculation under section 87A assuming the taxpayer is a resident individual and has not opted for the alternative tax regime under section 115BAC.
Amount in Indian Rupees
Net Income | 3,50,000 | 5,00,000 | 6,05,000 |
Income tax on net income | 5,000 | 12,5000 | 33,500 |
Less: Income tax rebate under section 87A | 5,000 | 12,500 | Nil |
Balance | Nil | Nil | 33,500 |
Add: Surcharge | Nil | Nil | Nil |
Total | Nil | Nil | 33,500 |
Add: Health and Education cess @ 4% | Nil | Nil | 1,340 |
Tax Liability | Nil | Nil | 34,840 |
What if the resident individual has decided to opt for an alternative tax regime under section 115BAC. Let us see how income tax rebate under section 87A is calculated for the assessment year 2024-25 with different net income.
Amount in Indian Rupees
Net income | 7,00,000 | 7,27,100 | 7,30,000 |
Tax on net income | 25,000 | 27,710 | 28,000 |
Less: Rebate under section 87A | 25,000 | Nil | Nil |
Marginal relief (applicable from assessment year 2024-25 onwards) | |||
Excess of net income over 7,00,000 rupees | N.A. | 27,000 | 30,000 |
Rebate under section 87A as per marginal relief provision | N.A. | 710 | Nil |
Tax after rebate under section 87A | Nil | 27,000 | 28,000 |
Add: Health and education cess @ 4% | Nil | 1,080 | 1,120 |
Tax liability | Nil | 28,080 | 29,120 |