What is the exact provision of section 87A of the Income Tax Act?

Latest update: 01.02.2023

In the Union Budget 2023, Finance Minister Nirmala Sitharaman announced that the rebate under Section 87A will be hiked from Rs5 Lakh to Rs7 Lakh for taxpayers under the new tax regime. It means a tax rebate of Rs 25,000 under section 87A is available under the new tax regime (applicable for FY 2023-24) and persons in the new tax regime, with income up to Rs 7 Lakh will not have to pay any tax.
The eligibility for tax rebates of Rs.12500 under the old tax regime remains the same for the financial year 2023-24.

Section 87 A under tax regime;

The rebate under Section 87A was first introduced in the year 2013 and was changed from time to time. For the assessment year 2023-24, an individual taxpayer, who is a resident of India for income tax purposes, is entitled to claim a tax rebate of up to Rs. 12,500 against his tax liability if his income does not exceed Rs.5 lakh under the old regime. As super senior citizens above 80 years can earn a tax-free income of up to Rs 5 lakh, they are not eligible to claim rebates under section 87A. Only resident individual taxpayers can claim the income tax rebate.  NRIs, HUFs, Associations, and corporates are not eligible to claim an income tax rebate under Section 87A. To calculate the rebate follow the below steps.

The income Tax Department defines section 87A as under;

“An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 under the old regime and Rs.7,00,000 under the new regime is entitled to claim rebate under section 87A​. Rebate under section 87A is available in the form of a deduction from the tax liability. Rebate under section 87A​will be lower by 100% of income-tax liability ( Rs. 12,500 or 25000 as the case may be).

To calculate the rebate you need to follow the below steps.

1. Calculate your gross total income for the financial year:  Add up income from all sources like salary, capital gains, house rent, and income from other sources.
2.  Find the Net Taxable Income – Reduce your tax deductions for tax savings, investments, etc to gross income.
3. Claim u/s 87A: Taxable income after applicable deductions should not exceed Rs 5 lakhs in a financial year to claim relief under section 87A under the old tax regime and Rs 7 lakh under the new tax regime. If the income exceeds the above-said amounts taxpayer is not eligible to claim a rebate under section 87 A

File an income tax return declaring your gross income and tax deductions. If your taxable income is within Rs 5 lakh (old regime) or Rs 7 lakh (New tax regime) you will be exempted from paying income tax. Once the rebate is claimed under section 87A, the assessee’s income tax liability automatically becomes nil.