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Section 87A : Tax Rebate Under Section 87A

Section 87A of the Income Tax Act provides a tax rebate of up to ₹25,000 for resident individuals with a taxable income of ₹7,00,000 or less under the new tax regime.

  • 5,060 Views | Updated on: Oct 24, 2024

As a taxpayer in India, navigating the complications of the Income Tax Act and seeking ways to optimize your tax liabilities can be challenging. One notable provision that can significantly benefit you is the rebate offered under Section 87A.

In both the preceding and current income tax structures, there has been no alteration in the rebate amount granted under Section 87A for the fiscal years 2021-22 and 2022-23 (Assessment Years 2022-23 and 2023-24). If you have a taxable income of up to ₹5,00,000, you remain eligible for a tax rebate of ₹12,500, or the amount of tax payable (whichever is less).

However, there has been a modification in the rebate amount under Section 87A for the fiscal year 2023-24 (Assessment Year 2024-25) under the new income tax regime. If you have a taxable income of up to ₹7,00,000, you will receive a tax relief of ₹25,000. It is worth noting that the rebate under the former tax regime remains consistent, i.e., ₹12,500 for income up to ₹5,00,000.

What is an Income Tax Rebate?

An income tax rebate is a refund on taxes that you have already paid to the government. Think of it as the government giving you a little bit of your money back. This happens when you’ve paid more taxes than what you actually owe. The excess amount is returned to you in the form of a rebate.

Now, why would you pay more taxes than necessary? Well, it could happen due to various reasons. For instance, you might have made tax-saving investments after your employer deducted taxes from your salary, or perhaps there were miscalculations when your tax liability was initially assessed. In any case, if your actual tax liability is less than what you’ve paid, you’re entitled to get that extra money back.

What is Income Tax Rebate u/s 87A?

The Union Budget 2024 maintained the existing provisions for the Tax Rebate under Section 87A, leaving them unchanged. This means that eligible resident individuals in India can continue to benefit from a tax rebate of up to ₹25,000, effectively reducing their overall tax liability. To qualify for this rebate, an individual’s total taxable income must be ₹7,00,000 or less under the new tax regime. This provision offers substantial relief to small taxpayers, helping them manage their tax obligations more efficiently.

How Much is the Rebate Allowed under Section 87A in India?

If an individual’s total taxable income is up to ₹7,00,000, they will be eligible for the following tax breaks under the new tax regime for the fiscal year 2023-24:

  • ₹25,000 or the applicable tax (whichever is lower)
  • It is the same as earlier, ₹12,500, under the prior tax structure.

Steps to Claim a Tax Rebate under Section 87A

Outlined below are the procedures to avail of a tax rebate under Section 87A:

  • Start by calculating the gross total income for the relevant financial year.
  • Assess the applicable tax deductions based on investments, tax-saving activities, and other eligible factors.
  • After accounting for the tax deductions, review the total income.
  • File the income tax returns, where they will need to disclose both their tax deductions and gross income.
  • The maximum amount permissible for claiming a tax deduction under Section 87A of the Income Tax Act, 1961, is ₹12,500.

Example of Rebate Calculation under Section 87A

For individuals below 60 years of age for AY 2023-24:

Source of Income (FY 2023-24)

Income (₹)

Gross total income

6,50,000

Less: Deduction* under section 80C

1,50,000

Total income

5,00,000

Income-tax (@ 5% from ₹2.5 to 5 lakh)

12,500

Less: Rebate u/s 87A

12,500

Tax payable

Nil

Things to Remember While Availing of Rebate Under Section 87A in India

Consider the following points when utilizing the rebate under Section 87A:

  • The rebate applies to the overall tax amount before incorporating a health and education cess of 4%.
  • Only individuals are qualified to seek the rebate provided under this section.
  • Senior citizens aged above 60 years and below 80 years can take advantage of the rebate offered by Section 87A.
  • Super senior citizens aged above 80 years are ineligible to claim rebates under Section 87A.
  • The rebate amount will be capped at the limit specified under Section 87A or the total income tax payable (prior to cess), whichever is lower.
  • The Section 87A rebate is applicable under both the old and new tax regimes.

What Tax Liabilities are Covered Under Rebate?

Section 87A rebate can be claimed against tax liabilities on:

  • Regular income is subject to taxation at the applicable slab rates.
  • Long-term capital gains are covered by Section 112 of the Income Tax Act. (Section 112 pertains to long-term capital gains arising from the sale of any capital assets, excluding listed equity shares and equity-oriented schemes of mutual funds.)
  • Short-term capital gains from listed equity shares and equity-oriented schemes of mutual funds are taxed at a fixed rate of 15% under Section 111A of the Act.

Eligibility for Claiming Rebate Under Section 87A

Individuals are eligible to avail of the rebate under Section 87A for the financial years 2023-24, provided the following conditions are met:

  • The overall income, post the deduction adjustments under Chapter VI-A (Section 80C, 80D, etc.), does not surpass ₹5 lakh in a financial year.
  • The tax rebate is capped at ₹12,500. If an individual’s total tax liability is less than ₹12,500, they will not be required to make any tax payments.
  • Note that the rebate will be applied to the total tax before incorporating the health and education cess of 4%.

Things to Consider about Section 87A

When it comes to managing your taxes, any opportunity to reduce your tax burden is worth exploring. One such opportunity that often flies under the radar is the tax rebate offered under Section 87A of the Income Tax Act. If you’re wondering how this rebate works and what you should keep in mind, let’s walk through the key points together in a simple, conversational way.

Understanding the Eligibility Criteria

First things first, let’s talk about who can actually benefit from Section 87A. This rebate is specifically designed for resident individuals—sorry, non-residents, this one isn’t for you. The main criterion for eligibility is that your total taxable income should be ₹7,00,000 or less under the new tax regime. If your income falls within this bracket, you’re in luck! You can claim a rebate of up to ₹25,000 on your tax liability, which means you could end up paying little to no tax at all.

New Tax Regime vs. Old Tax Regime

One thing to keep in mind is that the rebate under Section 87A is available only under the new tax regime. The new regime offers lower tax rates but with fewer exemptions and deductions. So, if you’re someone who prefers sticking to the old tax regime because of the various deductions available, you won’t be able to claim the rebate under Section 87A. It’s important to weigh the pros and cons of both regimes to see which one benefits you more.

Important Considerations for Senior Citizens

Now, if you’re a senior citizen, you might be wondering if this rebate applies to you. The good news is that it does! Whether you’re under 60, between 60 and 80, or over 80, as long as you meet the income criteria and are a resident, you can claim this rebate. This can be particularly beneficial for those who are on a fixed income and looking for ways to minimize their tax outflow.

Impact of Different Income Sources

Another important thing to consider is how your various income sources affect your eligibility for the rebate. For instance, if you have income from salary, interest, or even capital gains, all of these will contribute to your total taxable income. If the sum of all these incomes is ₹7,00,000 or less, you’re good to go. But if your income exceeds this limit, even by a small amount, you won’t be eligible for the rebate. So, it’s crucial to keep track of all your income sources and plan accordingly.

No Carry Forward of Rebate

One last thing to note: the rebate under Section 87A is not something you can carry forward to the next year. It’s a use-it-or-lose-it benefit. This means that if you don’t claim it in the year you’re eligible, you can’t save it for future tax filings. So, make sure you’re aware of your eligibility each year and take advantage of the rebate when you can.

Final Thoughts

As taxpayers embark on the journey of complying with the income tax regulations for FY 2023-24, they must be aware of provisions like Section 87A. Leveraging rebates can result in significant tax savings for eligible individuals and HUFs. However, it is advisable to seek professional advice or refer to the latest amendments in the Income Tax Act to ensure accurate and up-to-date information.

Understanding and optimizing tax benefits, such as the rebate under Section 87A, can contribute to a more tax-efficient financial plan for individuals and families in the upcoming financial year.

FAQs on Rebate under Section 87A


1

How does the rebate under Section 87A affect my taxable income?

The rebate under Section 87A directly reduces your tax liability, not your taxable income. If your taxable income is ₹7,00,000 or less (under the new tax regime), you can get a rebate of up to ₹25,000, which lowers the tax you owe.



2

Is the rebate under Section 87A applicable to both resident and non-resident individuals?

No, the rebate under Section 87A is only available to resident individuals. Non-resident individuals are not eligible for this rebate.



3

How do I claim the rebate under Section 87A while filing my income tax return?

To claim the rebate under Section 87A, you need to calculate your total taxable income and ensure it is ₹7,00,000 or less under the new tax regime. The rebate is automatically applied when you file your income tax return online or manually.


4

Does the rebate under Section 87A apply to senior citizens?

Yes, the rebate under Section 87A applies to all resident individuals, including senior citizens, as long as their taxable income is ₹7,00,000 or less under the new tax regime.


5

Can I claim the rebate under Section 87A if I have income from capital gains?

Yes, you can claim the rebate under Section 87A even if you have income from capital gains, provided your total taxable income, including the capital gains, does not exceed ₹7,00,000 under the new tax regime.

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.