Income Tax Rebate U/S 87A for AY 2024-25 & FY 2023-24

Income Tax Rebate U/S 87A for AY 2024-25 & FY 2023-24

It is quite evident that the Government is more prone to keep only one income tax regime i.e. the new tax regime which has also been made as the default tax regime from the AY 2024-25.

It has also been noticed that for the first time under the new tax regime for AY 2024-25, there is only a single income tax slab for all categories of taxpayers.

The Finance Bill 2023,as presented before Lok Sabha for approval read as follows:—–

In section 87A of the Income-tax Act, the following proviso shall be inserted with effect from the 1st day of April,
2024, namely:––

“Provided that where the income-tax payable on the total income of the assessee is computed under sub-section (1A) of section 115BAC, this section shall have the effect as if,––
(a) for the words “five hundred thousand rupees”, the words “seven hundred thousand rupees”;
(b) for the words “twelve thousand and five hundred rupees”, the words “twenty-five thousand rupees”

Therefore, the synopsis of amended Rebate U/S 87A for AY 2024-25 read as follows:

• Applicability: This amendment is applicable from 1^st April 2024 i.e. wef AY 2024-25;
• Section 115BAC: To avail of this enhanced rebate one has to file income tax under the default(new) tax regime i.e. U/S 115BAC(1A);
• Net Taxable Income: Income Tax Rebate U/S 87A shall be allowed if net taxable income is up to Rs.7 Lakh under the new tax regime;
• Rebate amount: Maximum rebate amount shall be Rs. 25,000/- from earlier Rs.12,500/–;
• Lesser Rebate: Those who will opt for the old tax regime shall be eligible for a rebate of Rs.12,500/- only;
• Senior Citizens: There is no special benefit either for Senior Citizens or Super Senior Citizens whatsoever in the default new tax regime as far as the income tax slab is concerned.

Therefore, it is very interesting to know that Income Tax Rebate U/S 87A for AY 2024-25 and FY 2023-24 has two paradigms.

Rs. 25,000/- rebate shall be allowed if you opt for the New(Default) tax regime and Rs.12,500/- rebate shall be allowed if you choose the old tax regime.

Now, before digging deep into the subject, let us understand some basic concepts regarding Rebate U/S 87A.

What is the Rebate under section 87A AY 2024-25?

Rebate means acknowledging your tax liability but granting you relief or deduction so that you don’t need to pay your tax liability on the fulfilment of certain conditions.

This means the Government is granting you a relief to pay tax up to a certain limit of income on attaining certain conditions. Further, as per Wikipedia, a Tax Rebate can be defined as the refund of taxes when the tax liability is less than the taxes paid.

So, a tax rebate is basically a refund of tax which an individual can claim upfront from his income tax liability. There is a tax liability for you but you are not supposed to pay that as per the rebate u/s 87A.

Now if we talk about Rebate U/S 87A for AY 2024-25, we may find that there exist two different types of Income Tax Rebate U/S 87A depending upon your choice of income tax regime for FY 2023-24 and AY 2024-25.

However, this tax rebate under both the tax regime applies up to the net taxable income limit of ₹ 7 Lakh and ₹ 5 Lakh for new and old tax regimes, respectively.

Want to have income tax calculator ay 2023-24 excel? Just check below

Which category of persons are eligible for Rebate under section 87A and when?

To be eligible for rebate U/S 87A, the following criteria need to be fulfilled:

• Resident Indian: One needs to be a resident INDIAN to claim Rebate U/S 87A;
• Threshold Limit for new(Default) tax regime: Your Net Taxable Income  i.e. total income after standard deduction and other admissible deductions is less than or equal to ₹ 7 Lakh, you are eligible for a maximum tax rebate of ₹ 25,000/-;
• Threshold Limit for the old tax regime: The maximum rebate U/S 87A is capped at ₹ 12,500/- only if your net income after standard deduction is below ₹ 5 Lakh and the tax liability before adding Cess @4% is below ₹ 12500/-, then you will be allowed rebate up to that amount only;
• Non-Resident: No Non Resident Indian is entitled to this rebate;
• Other than Individual: No HUF, partnership firm or company is entitled to this rebate other than individual taxpayer;
• Uniform Rebate: Income Tax Rebate U/S 87A is equal for all w.e.f FY 2023-24, irrespective of the types of taxpayers such as senior citizens, female taxpayers or even taxpayers below 60 years of age.

How to calculate Rebate U/S 87A?

Most surprisingly the Income Tax Rebate u/s 87A has to be calculated in two ways, i.e. for the new tax regime and the old tax regime. This is the first time that one’s income tax rebate depends upon his choice of tax regime.

Now let us check under the new tax regime how is section 87A rebate calculated.

How Income Tax Rebate U/S 87A is calculated based on New(Default) Tax Regime?

Therefore, you can check from the above calculation that for gross income up to ₹ 7,50,000/- after a standard deduction of ₹ 50,000/-, the Net taxable income becomes exactly ₹ 7,00,000/- and this allows to avail rebate u/s 87A for AY 2024-25 and FY 2023-24.

Whereas, for the old tax regime, if your net taxable income exceeds Rs.5 Lakh, you are not eligible to claim any rebate U/S 87A. So, it seems quite unfair for those who would select the old tax regime.

Now from the below calculation you can check that for the same income level i.e. ₹ 7.50 Lakh, one has to mandatorily invest ₹ 2 Lakh to make his net taxable income below ₹ 5 Lakh to avail rebate of ₹ 12,500/- under the old tax regime.

Therefore, it is quite evident that Govt. is pushing the taxpayers towards the new tax regime so that India can witness only one tax regime in the coming years.

How 7 Lakh Income is Tax Free?

Firstly, one must know that to be eligible to make ₹ 7 Lakh income, tax-free, one must choose the new tax regime while filing the tax return. Further, this ₹ 7 Lakh income slab is uniform for all the taxpayers such as individuals, females, senior citizens and super senior citizens.

This is the first time that senior citizens and super citizens are not allowed any extra privilege over the income tax slabs in the new tax regime U/S 115BAC. Now, all taxpayers have the same income tax slabs, unlike in previous years when senior and super senior citizens would have got extra benefits over income tax slabs.

However, the income tax slabs are not the same in the case of the old tax regime for AY 2024-25 and FY 2023-24. Let us have a look at the below table for a better understanding:

Income Tax Rates Applicable for FY 2023-24 as per the Old Tax Regime -Below 60 Years:

Income Tax Rates Applicable for FY 2023-24 as per the Old Tax Regime -Aged between 60 to 80 Years:

Income Tax Rates Applicable for FY 2023-24 as per the Old Tax Regime -Above 80 Years:

So, what is most important to note here is that the Rebate U/S 87A for FY 2023-24 & AY 2024-25 are different for new and old tax regimes. Individuals who will opt for the new tax regime shall get a rebate of ₹ 25,000/- and those who will opt for the old tax regime shall get a rebate of ₹12,500/-.

Who is not allowed to claim rebate U/S 87A?

The following persons are not allowed to claim rebate U/S 87A:

• A non-resident Indian is not allowed to claim a rebate u/s 87A;
• A person who has opted old tax regime is not allowed to claim rebate of the higher amount of ₹ 25,000 but he may claim rebate of ₹12,500;
• A person whose net taxable income has exceeded ₹ 7 Lakh, is not eligible to claim rebate u/s 87A;
• No HUF, partnership firm or company is entitled to this rebate other than individual taxpayer;

Is senior citizen eligible for U/S 87A Rebate?

Of course, a senior citizen is eligible for a U/S 87A rebate. However, the rebate U/S 87A for FY 2023-24 & AY 2024-25 is not equal for all categories of the assesses.

If a senior citizen wants to avail tax rebate U/S 87A, his net taxable income shall not exceed ₹ 7 Lakh(Max amount of rebate is ₹ 25,000/-) and ₹ 5 Lakh Max amount of rebate is ₹ 12,500/-)under the new and old tax regime respectively.

87A Rebate in New Tax Regime

As per the Finance Act 2023, the threshold limit for total income eligible for rebate under Section 87A has been proposed to be increased from ₹ 5,00,000 to ₹ 7,00,000 for assesses opting for the new tax regime w.e.f FY 2023-24 & AY 2024-25.

Also, the maximum amount of rebate has been enhanced to ₹ 25,000 from the existing ₹ 12,500 under the new tax regime as per the Finance Act, 2023.

87A Rebate in Old Tax Regime

The maximum amount of tax rebate U/S 87A under the old tax regime is capped at ₹ 12,500 only for a net taxable income up to ₹ 5,00,000.