Section 87A provides a tax rebate to resident individual taxpayers, reducing their income tax liability if their taxable income falls within a specified threshold. The rebate directly lowers the tax payable, potentially bringing it down to zero. Notably, this benefit is exclusive to individuals and is not applicable to any other entities.
Eligibility Criteria for Claiming Rebate
The rebate under Section 87A the employee must meet the following criteria:
- Must be a resident individual as per the Income Tax Act.
- The total taxable income after all deductions and exemptions, must not exceed the prescribed limit. For FY: 2024-25 it is ₹12,500 under Old Regime and ₹25,000 under New Regime.
Rebate Structure for FY 2024-25
The rebate under Section 87A varies depending on the tax regime you choose – old or new.
Below is a comparison:
| Tax Regime | Taxable Income Limit for Rebate | Maximum Rebate Amount | Effective Tax Payable |
| Old Tax Regime | Up to ₹5 lakh | ₹12,500 | Zero |
| New Tax Regime | Up to ₹7 lakh | ₹25,000 | Zero |
How Does the Rebate Work?
The rebate under Section 87A is deducted directly from the calculated income tax liability (before cess). If your tax liability is less than or equal to the maximum rebate amount, the tax payable becomes zero, this rebate does not apply.
Example Scenarios
Old Tax Regime:
- Scenario: Taxable income of ₹4.8 lakh.
- Tax Liability: ₹11,500 (as per old regime slabs).
- Maximum Rebate: ₹12,500 (full rebate under Section 87A).
- Final Tax Payable: ₹0
New Tax Regime:
- Scenario: Taxable income of ₹6.8 lakh.
- Tax Liability: ₹19,000 (as per new regime slabs).
- Maximum Rebate: ₹25,000 (full rebate under Section 87A).
- Final Tax Payable: ₹0
Understanding Marginal Relief in the New Tax Regime
In the new tax regime, if the taxable income slightly exceeds the threshold limit of ₹7 lakh, marginal relief ensures that your tax liability does not disproportionately increase. The tax payable is limited to the amount by which your income exceeds ₹7 lakh. This provision prevents an illogical tax burden for marginal increase in income. This relief is not applicable in the ‘Old Regime’.
Marginal Relief Example
- Taxable Income: ₹7.0 lakh (Tax Liability before rebate ₹20,000 and after rebate ₹0.)
- Taxable Income: ₹7.1 lakh.
- Tax Liability (Before Rebate): ₹21,000 (as per new regime slabs).
- Excess Income Over ₹7 Lakh: ₹10,000 (₹7.1 lakh – ₹7 lakh).
- Tax Payable after Marginal Relief: Limited to ₹10,000 (the excess income).
- Final Tax Payable: ₹10,000 + cess.