How is Section 87A Rebate Calculated for FY 2024-25?

Section 87A of the Income Tax Act provides a rebate to eligible taxpayers in India, reducing their overall tax liability. This rebate is aimed at offering relief to individuals with taxable income below certain thresholds. The provisions under Section 87A have been updated by the Finance Act, 2023, and these changes will apply from FY 2024-25. Let us check How is Section 87A Rebate Calculated for FY 2024-25?

Who is Eligible for Section 87A Rebate in FY 2024-25?

The rebate under Section 87A is available to resident individuals whose total income does not exceed ₹5,00,000 (for regular taxpayers) or ₹7,00,000 (for taxpayers opting for the new tax regime under section 115BAC).

Here are the updated eligibility criteria for FY 2024-25:

1. For taxpayers opting for the old tax regime:
   • The individual must be a resident in India.
   • The total taxable income must be ₹5,00,000 or less.
   • If the taxable income exceeds ₹5,00,000, the individual is not eligible for this rebate.
2. For taxpayers opting for the new tax regime (Section 115BAC):
   • The total taxable income must be ₹7,00,000 or less.
   • If the taxable income exceeds ₹7,00,000, the individual will not be eligible for this rebate.

Income Tax Rebate Status for 2025

How is Section 87A Rebate Calculated for FY 2024-25?

The calculation of Section 87A rebate has two parts based on the income and tax regime chosen:

1. For taxpayers under the Old Tax Regime (Taxable income up to ₹5,00,000):

• The rebate is the lesser of:
  • 100% of the income-tax payable (before applying other deductions), or
  • ₹12,500.

So, if the total taxable income is ₹5,00,000 or less, the individual is entitled to a rebate of ₹12,500, which will be deducted from the calculated tax.

2. For taxpayers under the New Tax Regime (Section 115BAC) (Taxable income up to ₹7,00,000):

The Finance Act, 2023, introduced a change in the rebate calculation for those opting for the new tax regime. Here’s how it works:

• If the taxable income is ₹7,00,000 or less:
  • The rebate is the lesser of:
    • 100% of the income-tax payable (before applying other deductions), or
    • ₹25,000.
• If the taxable income exceeds ₹7,00,000 but does not exceed the income on which the tax exceeds the amount by which the income exceeds ₹7,00,000:
  • The rebate is the amount by which the income-tax exceeds the excess over ₹7,00,000.

Example of Section 87A Rebate Calculation for FY 2024-25

Let’s consider two examples for a clearer understanding:

1. Under the Old Tax Regime (Income of ₹4,80,000):

• Taxable income: ₹4,80,000
• Tax calculation: 5% of ₹2,30,000 (taxable income above ₹2.5 lakh), which equals ₹11,500.
• Rebate under Section 87A: ₹11,500 (since it is less than ₹12,500).
• Final Tax Payable: ₹0 (because the rebate nullifies the tax liability).

2. Under the New Tax Regime (Section 115BAC) (Income of ₹6,50,000):

• Taxable income: ₹6,50,000
• Tax calculation: 5% of ₹4,00,000 (taxable income above ₹2.5 lakh), which equals ₹20,000.
• Rebate under Section 87A: ₹20,000 (since it is less than ₹25,000).
• Final Tax Payable: ₹0 (because the rebate nullifies the tax liability).

3. Under the New Tax Regime (Section 115BAC) (Income of ₹8,00,000):

• Taxable income: ₹8,00,000
• Tax calculation: 5% of ₹5,50,000 (taxable income above ₹2.5 lakh), which equals ₹27,500.
• Rebate under Section 87A: Since the income exceeds ₹7,00,000, the rebate is calculated as the amount by which the income-tax exceeds the ₹1,00,000 threshold (i.e., ₹27,500 – ₹20,000), resulting in a rebate of ₹7,500.
• Final Tax Payable: ₹20,000 (after applying the rebate).

Important Points to Remember for FY 2024-25:

• Rebate under Section 87A is a direct reduction from the income-tax payable and not a deduction from taxable income.
• Eligibility for the rebate depends on the total taxable income, which must not exceed ₹5,00,000 for the old tax regime or ₹7,00,000 for the new tax regime.
• For individuals in the old tax regime, the maximum rebate is ₹12,500.
• For individuals in the new tax regime (Section 115BAC), the maximum rebate is ₹25,000 for income up to ₹7,00,000, and for income exceeding ₹7,00,000, a partial rebate is applied based on the excess tax over the ₹7,00,000 threshold.

Conclusion

The Section 87A rebate for FY 2024-25 offers valuable relief to individuals in both the old and new tax regimes. The introduction of the higher rebate limit of ₹25,000 for those opting for the new tax regime is a significant change, providing greater benefits for taxpayers with income below ₹7,00,000.

By understanding the updated provisions, taxpayers can plan their taxes effectively and reduce their tax liabilities, ensuring they take full advantage of the available rebates. Whether under the old tax regime or the new one, Section 87A remains an important tool for making tax filing less burdensome.