Income Tax Rebate Under Section 87A

Navigating the intricacies of income tax may be challenging for individual taxpayers. However, Section 87A of the Income Tax Act offers some relief by reducing the tax liabilities for eligible individuals. Understanding the nuances of the tax rebate under Section 87A is essential for maximising tax benefits.

This article explores the details of Section 87A, its eligibility criteria, advantages and how to claim the rebate.

What is tax rebate under Section 87A?

Section 87A of Income Tax Act allows eligible taxpayers to claim a rebate on their tax liability. This provision is designed to provide tax relief under Section 87A to individuals with lower incomes, ensuring they pay minimal or no tax. Unlike deductions, which lower the taxable income, a rebate decreases the actual tax liability, offering substantial tax relief to qualifying individuals.

Types of taxpayers eligible for the rebate

Eligibility for the tax rebate under Section 87A is confined to specific categories of taxpayers:

1. Only Indian residents can claim this rebate.
2. It is available to those whose total taxable income does not exceed the specified limit under the applicable tax regime.
3. 87A rebate for senior citizens is applicable if they meet the income criteria.

Rebate u/s 87A for FY 2024-25 (AY 2025-26)

For the Financial Year 2024-25 (Assessment Year 2025-26), the provisions of Section 87A have been structured as follows:

1. Old tax regime: People with a taxable income up to Rs 5,00,000 qualify for a rebate of up to Rs 12,500.
2. New tax regime: The rebate has been enhanced, allowing individuals with a taxable income of up to Rs 7,00,000 to avail of a rebate of up to Rs 25,000.

How much is the rebate allowed u/s 87A?

The quantum of the 87A deduction varies based on the chosen tax regime:

1. Old tax regime: Maximum rebate of Rs 12,500 for incomes of up to ₹5,00,000.
2. New tax regime: Maximum rebate of Rs 25,000 for incomes of up to Rs 7,00,000.

Steps to claim a tax rebate under Section 87A

To claim the tax rebate under Section 87A, follow these steps:

1. Aggregate all sources of income.
2. Subtract eligible deductions under Section 80C (investments) and Section 80D (health insurance policy premiums, individual health insurance).
3. The resultant figure after deductions is your taxable income.
4. Compute the tax based on applicable slab rates.
5. If your taxable income is within the eligible limit, reduce your tax liability using 87A deductions.

Eligibility to claim rebate u/s 87A for FY 2024-25 for old regime

Under the old tax regime for FY 2024-25, resident individuals with a taxable income up to Rs 5,00,000 qualify for a rebate of up to Rs 12,500.

Rebate limit under Section 87A for all the financial years

The rebate under Section 87A has evolved over the years:

1. FY 2019-20 to FY 2021-22: Rebate of Rs 12,500 for incomes up to Rs 5,00,000.
2. FY 2022-23: Similar provisions as in previous years.
3. FY 2023-24: Introduction of the new tax regime with a rebate of Rs 25,000 for incomes up to Rs 7,00,000.
4. FY 2024-25: Continued provisions with specified limits under both regimes.

Benefits of Section 87A Rebate

The tax relief under Section 87A offers multiple advantages:

1. Directly lowers tax liability for low-income earners.
2. Simplifies tax calculations.
3. Provides additional relief to senior citizens.

Things to remember while availing rebate under Section 87A

When claiming the 87A deduction, you should keep the following in mind:

1. Only resident individuals are eligible.
2. Ensure your taxable income does not exceed the specified limit under your chosen tax regime.
3. The rebate is applied to the total tax before adding cess.
4. Income taxed at special rates (e.g. capital gains) may not qualify for the rebate.

FAQs

• Is the 87A rebate available under the new tax regime?

Yes, the 87A rebate in new tax regime is available for incomes up to ₹7 lakh.

• Can senior citizens claim the 87A rebate?

Senior citizens are eligible for the rebate if their taxable income is within the specified limit.

• Can I claim the 87A rebate if I have a health insurance policy?

A health insurance policy does not affect your eligibility for the 87A rebate. However, the premium paid for the policy may qualify for deductions under other sections.

Conclusion

The tax rebate under Section 87A is a valuable provision offering significant tax relief to lower-income individuals. Whether you are a senior citizen or a young professional, you must understand the eligibility criteria and rebate limits to help you maximise your tax savings.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is not intended as a substitute for professional advice, diagnosis, or treatment. Please consult your general physician or another certified medical professional for any questions regarding a medical condition. Relying on any information provided in this blog is solely at your own risk, and ICICI Lombard is not responsible for any effects or consequences resulting from the use of the information shared.