As per section 87A of the Income tax act, 1961, a resident individual is eligible for income tax rebate if their taxable income does not exceed 5,00,000 rupees in the financial year 2023-24 (assessment year 2024-25).
This means, being a resident individual, if your taxable income after eligible tax deduction is Rs 5,00,000 or below it, then you can claim income tax rebate under section 87A.
Same limit and conditions were applicable for the financial year 2022-23 (Assessment year 2023-24). Which means, being a resident individual you were eligible for income tax rebate under section 87A, if your taxable income was not exceeding 5,00,000 rupees in the financial year 2022-23 (assessment year 2023-24).
There is a small change to this provision for the financial year 2023-24 (assessment year 2024-25) if you opt to pay tax under the new tax regime.
As per this new provision, a resident individual who wants to pay tax under alternative tax regime under section 115BAC(1A) is eligible for a higher limit of 7,00,000 rupees. Which means, a resident individual opting for new tax regime under section 115BAC (1A), is eligible for income tax rebate if their taxable income is 7,00,000 rupees or below it.
Amount of income tax rebate under section 87A
For the financial year 2022-23 (assessment year 2023-24), if the taxable income was not exceeding the limit of 5,00,000 rupees, then the resident individual had the option to claim 100% of income tax or 12,500 rupees, whichever is less as income tax rebate. This was applicable irrespective of the tax regime the resident individual has opted for the financial year 2022-23 (AY 2023-24).
As discussed above, there is a change in the provision of income tax rebate for the financial year 2023-24 (assessment year 2024-25).
For the financial year 2023-24 (AY 2024-25), if the taxpayer is not opting for a new tax regime, then their eligibility is 100% of income tax or 12,500 rupees, whichever is lower provided taxable income does not exceed 5,00,000 rupees.
If the resident individual wants to pay tax under alternative tax regime under section 115BAC(1A), then their income tax rebate eligibility is 100% of income tax or 25,000, whichever is lower provided taxable income should not exceed 7,00,000 rupees.
With effect from assessment year 2024-25 (financial year 2023-24), income tax rebate under section 87A is subject to marginal relief.
As per this new provision, if the taxable income exceeds 7,00,000 rupees but does not exceed 7,27,700 rupees, then income tax on such income cannot exceed the amount by which the net income exceeds 7,00,000 rupees.
To claim an income tax rebate, you have to file your income tax return with the department. It’s not automatically available to you based on your eligibility.
Who can’t avail income tax rebate under section 87A
Please note, income tax rebate under section 87A is not available to a non-resident individual, partnership firm, private limited company, public limited company, One Person Company (OPC), resident or non-resident HUF or AOP or BOI or any taxpayer other than a resident individual.
Long term capital gain (LTCG) from equity shares and equity mutual funds are not eligible for section 87A tax rebate. This means, if your taxable income includes any LTCG U/S 112A of the income tax act, 1961, from sale of listed equity shares or units of an equity mutual funds, rebate U/S 87A is not allowed on the tax payable arising on such long term capital gain.
However, long term capital gain (LTCG) from real estate, unlisted shares or any other assets would be eligible for section 87A income tax rebate.
Similar to long term capital gain, income from Winnings from gambling, virtual digital assets (VDA), online gaming, lotteries, game shows or betting are not eligible for income tax rebate under Section 87A.
Also read:- How to calculate income tax rebate under section 87A