Tax rebate under section 87A of Income Tax Act

For the old tax regime,  an individual, who is resident in India, is allowed a tax rebate under section 87A if the total income of such individual does not exceed Rs. 500,000.  The rebate is allowed to the extent of Rs. 12,500. Thus, if the total tax (excluding health & education cess) is less than or equal to Rs. 12,500, then the whole amount can be claimed as a rebate by a resident individual.

For the new tax regime, rebate under section 87A is available to resident individuals whose total income during the previous year does not exceed Rs. 7,00,000. Rebate is available to the extent of Rs. 25,000 only, and no rebate will be available if the total income exceeds Rs. 7,00,000.

According to the Income-tax Act, the rebate under Section 87A is available to only resident individuals. Taxpayers such as non-resident individuals (NRIs), Hindu Undivided Family (HUF) and firms are not eligible for the rebate under Section 87A.

The steps to claim tax rebate under Section 87A depend on the income tax regime chosen by you.

If you are opting for the new tax regime
Step 1: Calculate your gross total income from all the sources.

Step 2: Once calculated, deduct all the deductions that you are eligible for. In FY 2022-23, an individual is eligible for Section 80CCD (2) for employer’s contribution to the employee’s NPS account. From FY 2023-24, a salaried employee is eligible for a standard deduction of Rs 50,000 as well.

Step 3: Once the deductions are deducted from gross taxable income, you get the net taxable income. If your net taxable income does not exceed Rs 7 lakh, you are eligible for the tax rebate under Section 87A. This rebate will be automatically taken into account at the time of filing the income tax return. The tax payable will be shown as zero.

If you are opting for the old tax regime
Step 1: Calculate your gross total income from all the sources.Step 2: Once calculated, deduct all the deductions that you are eligible for. No changes in income tax slabs and rates have been announced for the old tax regime. Hence, an individual can claim all the tax exemptions – such as HRA, LTA and deductions sections 80C, 80D etc.

Step 3: Once the deductions are deducted from the gross taxable income, one gets the net taxable income. If your net taxable income does not exceed Rs 5 lakh, you are eligible for the tax rebate under Section 87A. This tax rebate will be automatically taken into account at the time of filing the income tax return. The tax payable will be shown as zero under the old tax regime.