Seeking strategies to reduce tax liability? The rebate under Section 87A may be your answer. This guide explores how this rebate can minimize your tax dues.

Introduction to Section 87A Rebate

The Section 87A rebate provides tax relief for individuals within certain income thresholds. For the fiscal year 2023-24, this rebate benefits those with a total income, after Chapter VIA deductions, of up to Rs 5 lakh under the old tax regime or Rs 7 lakh under the new tax regime. Effectively, it can reduce your tax payable to zero.

Section 87A Rebate for FY 2023-24

In FY 2023-24 (AY 2024-25), though the slab rate changes in the new tax regime adjust eligibility, the Section 87A rebate amount remains the same. Eligibility under the old regime is for taxable income up to Rs 5 lakh, whereas under the new regime, it's Rs 7 lakh.

Rebate Amount Details

Under the new regime, for income up to Rs 7 lakh, the rebate is the smaller of the total tax payable or Rs 25,000. For the old regime, for incomes less than Rs 5 lakh, it's the lesser of the total tax payable or Rs 12,500. If income exceeds Rs 7 lakh, taxes apply to the surplus.

Example Calculation:

For Mr. Ravi, aged 36, with a total income of Rs 7,15,000 (inclusive of salary and interest) under the new regime for AY 2024-25:

• Excess income: Rs 15,000 (Rs 7,15,000 - Rs 7,00,000)
• Tax liability computation:
• Rs 3,00,000: Nil
• Next Rs 3,00,000 @ 5%: Rs 15,000
• Remaining Rs 1,15,000 @ 10%: Rs 11,500
• Total = Rs 26,500
• Rebate determination: Since Rs 26,500 > Rs 15,000, rebate = Rs 15,000

Thus, the tax due after rebate is Rs 11,500, plus a 4% cess, totaling Rs 12,100.

Steps to Claim Section 87A Rebate

1. Calculate your gross income for the year.
2. Apply the relevant deductions to find your total income.
3. Declare income and deductions in your Income Tax Return (ITR).
4. Claim Section 87A rebate if your income falls within the specified limits.

For AY 2024-25, rebates are Rs 25,000 (new regime) and Rs 12,500 (old regime).

Examples for Rebate Calculation

For an individual below 60 under the new regime:

• Total Income: Rs 6,00,000
• Tax: 5% on Rs 3 lakh = Rs 15,000
• Rebate: Rs 15,000
• Tax Payable: Nil

For the same age group under the old regime:

• Gross Income: Rs 6,50,000
• Deductions (Section 80C): Rs 1,50,000
• Tax on Rs 5 lakh: Rs 12,500
• Rebate: Rs 12,500
• Tax Payable: Nil

Note: Sections 80C, 80D (medical insurance), 80CCD (NPS), etc., are applicable under the old regime.

Key Points for Section 87A Rebate

• Applies before health & education cess (4%)
• Eligible for resident individuals
• Available for senior citizens aged 60-80
• Maximum rebate is the lesser of the Section 87A cap or total tax payable
• Applies to both old and new regimes

Section 87A and Different Tax Obligations

The rebate can offset:

• Normal income taxed at slab rates
• Long-term capital gains under Section 112 (excluding specific securities)
• Short-term gains on listed securities under Section 111A

Note: It doesn’t cover long-term gains under Section 112A (certain securities).

Eligibility for Previous Years

For FY 2022-23, you were eligible if:

• Resident individual
• Income, after Chapter VI-A deductions, was < Rs 5 lakh

Rebate capped at Rs 12,500, taxable if < this amount.

Historical overview:

• FY 2022-23 to FY 2020-21: Rs 12,500 (< Rs 5 lakh)
• FY 2018-19: Rs 2,500 (< Rs 3.5 lakh)
• FY 2017-18: Rs 2,500 (< Rs 3.5 lakh)

Example: Previous Years

For FY 2017-18:

• Total Income: Rs 2,65,000
• Tax (pre-cess): Rs 750
• Rebate: Rs 750
• Tax (post-cess): Nil

For FY 2018-19:

• Total Income: Rs 3,00,000
• Tax (pre-cess): Rs 2,500
• Rebate: Rs 2,500
• Tax (post-cess): Nil

Conclusion

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