INCOME TAX REBATE 87A - NEW CHANGES UNDER NEW REGIME
Are you ready to take advantage of the income tax rebate under section 87A in the new regime? Get ready to save more money and maximize your tax benefits with these exciting updates. In this blog, we have covered rebate under section 87A in the new regime and amendments in the calculation of rebate u/s 87A including applicable marginal relief.
Introduction - Income tax rebate under section 87A
An individual resident taxpayer can claim a rebate from the income tax payable if certain conditions are met. In the Union Budget 2024 presented by our finance minister, there have been no changes in the tax slabs and rebates, whether individuals opt for the new tax regime or the old regime. In the Budget 2023, it was announced that individuals choosing the new tax regime and having a taxable income of up to Rs. 7 lakhs would be eligible for a tax rebate of Rs. 25,000. This change became effective from FY 2324 (AY 24-25). Now, let’s understand Rebate under section 87A.
What is rebate 87A of the Income Tax Act?
Rebate under section 87A can be claimed when taxable income does not exceed the prescribed limit for the given financial year. Taxpayers can claim a maximum prescribed rebate as specified for the given Financial Year.
For the FY 2023-2024 (AY 2024-2025), the prescribed Income and rebate are as follows:
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Tax Regime
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Taxable Income
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Rebate
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New Tax Regime
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Upto 7,00,000/-
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Upto 25,000/-
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Old Tax Regime
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Upto 5,00,000/-
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Upto 12,500/-
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Note: The rebate is available on the total tax before health and education cess of 4%.
Who is eligible for Taking rebate 87A of the Act
The rebate under section 87A applies only to resident individuals. Non-resident taxpayers are ineligible for it. Other types of tax payers like Hindu Undivided Families (HUF), firms etc are also not qualified for this benefit.
How much is the Rebate Allowed u/s 87A?
For the assessment year 2024-2025, individuals filing their income tax return (ITR) can avail rebate up to Rs. 25,000 under the new tax regime and Rs. 12,500 under the old tax regime. The rebate amount will be determined based on the tax payable, with the lower amount being considered for the rebate. It's important to note that if the income exceeds the specified limit, no rebate will be applicable, and the taxpayer will be required to pay the actual amount of tax due. Marginal Relief is available up to a certain level of income.
New Regime
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Individual's Total Taxable Income
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Calculation
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Up to 7,00,000
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An amount of income tax payable on his total income
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Whichever is Lower
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Limit Prescribed - Rs 25,000
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Old Regime
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Individual's Total Taxable Income
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Calculation
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Up to 5,00,000
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An amount of income tax payable on his total income
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Whichever is Lower
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Limit Prescribed - Rs 12,500
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Marginal Relief of Rebate 87 in New Regime
Once income exceeds the threshold limit, no rebate is allowed. This is harsh as even for a Rs. 100 increase in income from 7, 00,000 to 7, 00,100 income tax will increase from nil to 25010. Fortunately, government has given a relief up to 7, 27,770. This means that the incremental tax cannot exceed the incremental income, up to this level of income. Beyond 7, 27,770, there is no relief and full tax is payable. Please note that this marginal relief is available only under the new regime.
Calculation of Rebate 87A and Marginal Relief
Step: 1 Calculate the difference between Net Taxable Income – 700000 (Limit Specified)
Step: 2 Calculate Tax payable as per the Slab defined under the new tax regime
Step: 3 Calculate the Difference Between Tax payable and Step 1
Step: 4 Difference will be payable, add Health Education Cess
Let’s Take an Example to Understand the Marginal Relief under Rebate 87A of the Income Tax Act.
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Tax is below the Limit
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Net Taxable Income
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7,16,000
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Tax a Per Slab - New Regime
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Up to Rs 3,00,000
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-
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Rs 3,00,000 to Rs 6,00,000
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5%
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15,000
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Rs 6,00,000 to Rs 900,000
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10%
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11,600
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Rs 9,00,000 to Rs 12,00,000
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NA
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-
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Rs 12,00,000 to Rs 1500,000
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NA
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-
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Above Rs 15,00,000
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NA
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-
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Total Tax before Rebate
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26,600
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Less: Rebate U/s 87A of the Act up to 7 Lakhs
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Step 1 Marginal Relief: (7,16,00-7,00,000)
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16,000
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Step: 2 (Tax payable -Marginal relief)
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26,600-16,000
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10,600
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Net Tax after Rebate (Step:3-Tax Payable -Step2)
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16,000
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Add: Health & Education Cess
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640
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Tax on Total Income
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16,640
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Rebate87A against various Tax liabilities
Incomes on which Rebate u/s 87A is available.
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Type of Income
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Particulars
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Normal income
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Like that of salary, business, house property & other sources taxed at slab rates.
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Long-term capital gains u/s 112
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Applicable on sale of any capital asset (other than listed equity shares and equity-oriented schemes of mutual funds which are taxable u/s 112A).
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Short-term capital gains u/s 111A
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Applicable on listed equity shares and equity-oriented schemes of mutual funds taxed at a flat rate of 15%.
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Incomes on which Rebate u/s 87A NOT available.
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Type of Income
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Particulars
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Long-term capital gains u/s 112A
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Applicable on sale of listed equity shares and equity-oriented schemes of mutual funds, taxable @ 10%.
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In conclusion
whether you are a salaried individual, a senior citizen, or any other resident individual eligible for rebate under Section 87A, taking advantage of this opportunity can significantly reduce your tax liability. Claiming income tax rebate under Section 87A helps you save money and ensures compliance with taxation regulations. Therefore, make sure to utilise this benefit effectively and plan your finances wisely to achieve long-term financial stability and growth.