How To Claim Income Tax Rebate Under Section 87A?

Paying income tax is one of the biggest responsibilities of every salaried and self-employed individual. However, to reduce the burden on small taxpayers, the government provides several rebates and deductions under the Income Tax Act, 1961. One of the most useful among them is the rebate under Section 87A, which allows eligible taxpayers to lower or completely eliminate their tax liability.

Key Takeaways

• Available only to resident individuals, not HUFs, firms, or NRIs.
• Income limit: ₹5 lakh (old regime), ₹7 lakh (new regime).
• Maximum rebate: ₹12,500 (old regime), ₹25,000 (new regime).
• Rebate is applied on tax payable before cess, not on income directly.

What is Section 87A Rebate?

Section 87A provides relief to individuals with income below a specified limit. It allows a deduction from the total tax payable before adding health and education cess. This benefit is available only to resident individuals (not HUFs, firms, or companies).

For FY 2024-25 (AY 2025-26):

• New Tax Regime: Individuals with taxable income up to ₹7 lakh can claim a rebate of up to₹25,000.
• Old Tax Regime: Individuals with taxable income up to ₹5 lakh can claim a rebate of upto ₹12,500.

Eligibility Criteria for Section 87A

To claim the rebate, you must satisfy the following conditions:

• You should be a resident individual of India.
• Your taxable income (after deductions) should not exceed the prescribed limit.
• The rebate is available under both regimes, but the thresholds differ.
• The rebate is applied to tax before cess is calculated.

How to Claim Income Tax Rebate Under Section 87A?

Step 1: Calculate Gross Total Income

Add up all your income sources such as salary, business or profession, house property, capital gains, and other income.

Step 2: Apply Deductions

Use available deductions under Sections 80C (investments in PPF, ELSS, LIC, etc.), 80D (medical insurance), 80G (donations), etc., to reduce your gross income.

Step 3: Compute Taxable Income

Subtract deductions from gross income. If your taxable income is within ₹5 lakh (old regime) or ₹7 lakh (new regime), you are eligible for rebate.

Step 4: Calculate Tax Before Cess

Apply the applicable tax slab rates.

Step 5: Apply Section 87A Rebate

Deduct up to ₹12,500 (old regime) or ₹25,000 (new regime), limited to the actual tax payable.

Step 6: Add Health & Education Cess

Finally, add 4% cess on the reduced tax liability.

Examples

Example 1: Old Regime

Rahul has a taxable income of ₹4.8 lakh. His tax before rebate is ₹12,000. Since his income is below ₹5 lakh, he can claim rebate under Section 87A. Hence, his tax becomes zero, and only cess is applied on nil, meaning no tax payable.

Example 2: New Regime

Priya earns ₹6.9 lakh taxable income. Her calculated tax liability is ₹23,000. Since her income is below ₹7 lakh, she can claim rebate up to ₹23,000, making her final tax liability zero.

Example 3: Higher Income (Not Eligible)

Amit earns ₹7.5 lakh under the new regime. His tax before rebate is ₹30,000. Since his income crosses ₹7 lakh, he cannot claim rebate under Section 87A, and he must pay full tax plus cess.

Key Points to Remember

1. Section 87A is applicable only to resident individuals.
2. Rebate is applied on tax payable, not directly on income.
3. Limits differ under old (₹5 lakh) and new (₹7 lakh) regimes.
4. The rebate cannot exceed your actual tax liability.
5. You still need to file ITR to claim this benefit.

Conclusion

The Section 87A rebate is one of the most beneficial tax reliefs for individuals with moderate incomes. It ensures that those earning below ₹5 lakh in the old regime or ₹7 lakh in the new regime do not have to pay income tax. However, taxpayers should carefully calculate their taxable income after deductions and choose the regime that offers the maximum benefit. Filing your Income Tax Return (ITR) on time is crucial to avail this rebate without any issues.