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.
Very useful information.
Thank you.
Even after making Rectification Applications to CPC to allow the Rebate u/s.87A, CPC is not considering the same and are sending the same Intimations as not allowable Rebate. It means, IT Dept is not ready to accept the verdicts of various Honourable High Courts. Is there any option to get it rectified without filing of Appeal as the cost of Appeal would be more than that of Demand raised by CPC.
You need to understand as to what is reason for not allowing rebate u/s 87A. This section is only for individuals and also excludes special income where tax rate is different (like Capital Gains). Please consult a tax professional.
GUIDE ME PLEASE I HAD FILED MY RETURN AS YEAR 2024-25 BEFORE DUE DATE 31/07/2024.I FILE ITR 2 AS I HAD INCOME OF CAPITAL GAIN SHORT TERM MY TAXABLAE INCOME WAS 650000 AND NEW REGIME .AFTER 5 JULY 2024 THEY DEDUCT TAX ON CAPITAL GAIN SO MY TAX WAS DEDUCTED AND REMAINING THEY REFUND ME. BUT IN DEC 2024 HIGH COURT ORDER TO CBST THOSE WHOSE INCOME BELOW 7 LAKH TIME OF 15 DAYS TO REVISE RETURN AND GAVE THEM REFUND, SO I REVISE RETURN 9JAN 2025 BUT THEY PROCESSED AND SAY IT IS SPECIAL INCOME SO THEY NOT GIVE ME REFUND WHAT DO
As per our understanding Section 87A does not apply to special income where taxation is at different rate. Captial Gains falls under this category. However, will strongly suggest that you take advise from a tax professional in this regards.