How to Calculate Income Tax Rebate under Section 87A for AY 2024-25

ZenIT || How to Calculate Income Tax Rebate under Section 87A for AY 2024-25

A tax rebate on an income of Rs 7 lakh has been introduced in the New Tax Regime (applicable for FY 2023-24).
The tax rebate under Section 87A for FY 2021-22 and FY 2022-23 (AY 2022-23 and AY 2023-24) remains the same. However, from FY 2023-24, the rebate threshold changes. Under the old regime, it applies to taxable income up to Rs 5,00,000, while under the new regime, it applies to taxable income up to Rs 7,00,000.
How much is the rebate allowed u/s 87A:
A. If an individual's total taxable income is up to Rs. 7 lakh and they opt for the new tax regime, they are eligible for a rebate equal to the lower of the following:    
      1) the amount of income tax payable on their total income, or
      2) an amount up to Rs. 25,000.

B. Whereas a resident individual paying tax under the Old tax regime for the financial year 2023-24 and having a total taxable income of less than Rs 5 Lakh, the rebate shall be the lower of the following:
      1) an amount equal to the income tax payable on their total income, or
      2) an amount of Rs. 12,500.

Things to remember while availing rebate under Section 87A:
1) The rebate can be applied to the total tax before adding a health and education cess of 4%.
2) Only resident individuals are eligible to avail rebate under this section.
3) Senior citizens above 60 years and below 80 years of age can avail a rebate under Section 87A.
4) The amount of rebate will be lower than the limit specified under Section 87A or total income tax payable (before cess).
5) Section 87A rebate is available under both the old and the new tax regime.

Rebate Against Various Tax Liabilities:
Section 87A rebate can be claimed against tax liabilities on:
1) Normal income taxed at the slab rate.
2) Long-term capital gains under Section 112 of the Income Tax Act. (Section 112 applies to long-term capital gains on the sale of any capital assets other than listed equity shares, as well as equity-oriented schemes of mutual funds).
3) Short-term capital gains on listed equity shares and equity-oriented schemes of mutual funds under Section 111A of the Act, on which tax is payable at a flat rate of 15%.
Note: Rebate under Section 87A cannot be adjusted against tax on long-term capital gains on equity shares and equity-oriented mutual funds (Section 112A).

Rebate under section 87A:
From Assessment Year 2024-25, a maximum rebate of Rs. 25,000 is allowed under section 87A if the total income of an individual is up to Rs. 7,00,000. Additionally, if the total income of the resident individual (opting for section 115BAC(1A)) exceeds Rs. 7,00,000 and the tax payable on such income exceeds the difference between the total income and Rs. 7,00,000, they can claim a rebate with marginal relief. This relief extends to the extent of the difference between the tax payable on the total income and the amount by which it exceeds Rs. 7,00,000.

Example 1:
If the total income is Rs. 7,20,000 (after deducting Standard Deduction), the calculation of rebate under section 87A will be as follows:
           Total Income – 720000,
            Total Tax on 720000 = 27000 (A)
Difference between the tax payable on the total income and the amount by which it exceeds Rs:
           7,20,000 - 7,00,000 = 20000 (B)
            Marginal Relief = A-B (27000-20000) =  7000
 Tax Rebate u/s 87A =  7000.00


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