Rebate U/S 87A For FY 2024-25(AY 2025-26): A Comprehensive Overview

Rebate U/S 87A for FY 2024-25 with Marginal Relief under Section 87A

The Income Tax Act of India offers several provisions to provide relief to taxpayers, and one such significant provision is the rebate under Section 87A. This rebate is aimed at reducing the tax burden on individuals with lower incomes. Here’s a detailed analysis of how Section 87A applies for the Financial Year 2024-25 and Assessment Year 2025-26.

The rebate under Section 87A of the Income Tax Act, 1961, is a significant tax relief provided to individual taxpayers in India. It aims to reduce the tax liability of individuals falling under a specific income bracket.

Benefits of Section 87A for FY 2024-25(AY 2025-26)

The benefits of Section 87A are as follows:

1. Tax Relief for Low-Income Groups: Individuals with limited income benefit significantly as the rebate nullifies their tax liability.
2. Encourages Compliance: Lower tax burdens make compliance more accessible for individuals, particularly in lower-income groups.
3. Simplifies Tax Calculations: Taxpayers eligible for the rebate can quickly calculate their liability, reducing the complexities involved in tax planning.
4. Promotes the New Tax Regime: By offering a higher income threshold for the rebate, the government incentivises the adoption of the new tax regime.

Eligibility Criteria for Rebate under section 87A for AY 2025-26/ Who is eligible for 87A rebate?

The eligibility criteria for Rebate Under Section 87A for AY 2025-26 is given below:

• Residential Status: Only resident individuals are eligible to claim rebate U/S 87A;
• Non-residents : Non-residents and other entities like HUFs, Companies, or Firms cannot claim the rebate;
• Taxable Income Limit/Threshold: The Net taxable income(N.T.I) after claiming Standard and other deductions should not exceed:
  • ₹7,00,000 under the new tax regime.
  • ₹5,00,000 under the old tax regime.
• Income Tax Return Filing: The taxpayer must file their Income Tax Return (ITR) to claim the rebate during the return filing process;
• Age Consideration: There is no age restriction. Resident senior citizens i.e. 60 years and above and super-senior citizens i.e. 80 years and above can also claim the rebate, provided their taxable income falls within the eligible thresholds.

Rebate U/S 87A for AY 2024-25: Quantum of Rebate

The rebate amount is the lower of:

1. Actual tax liability, or
2. New Tax Regime: ₹25,000 (for taxable income under the new tax regime up to ₹7,00,000), or
3. Old Tax Regime: ₹12,500 (for taxable income under the old tax regime up to ₹5,00,000).

Particulars	Old Tax Regime	New Tax Regime
Income Threshold for Rebate	₹5,00,000	₹7,00,000
Maximum Rebate Amount	₹12,500	₹25,000
Applicability of Deductions	Deductions allowed (e.g., 80C, 80D)	Deductions mostly not applicable

Rebate Under Section 87A for AY 2025-26: Key Features and Benefits

Key Features and Benefits of Section 87A are as follows:

1. Full Tax Exemption in Eligible Cases: Under the new tax regime, individuals with taxable income up to ₹7,00,000 do not pay any income tax, as the entire tax liability gets nullified by the rebate amount;
2. Ease of Compliance: The rebate simplifies tax calculations for individuals in the lower-income bracket, ensuring their effective tax rate remains 0% within the eligible thresholds;
3. Choice Between Old and New Tax Regimes: Taxpayers have the flexibility to choose between the old and new tax regimes. The rebate plays a crucial role in deciding the preferable regime, especially for incomes up to ₹7,00,000 under the new tax regime.

How is Section 87A rebate calculated?

How to Claim Rebate Under Section 87A

1. Step 1: Compute your gross total income.
2. Step 2: Deduct eligible exemptions and deductions to arrive at your taxable income.
3. Step 3: If your taxable income meets the eligibility criteria, calculate your income tax liability using the applicable slab rates.
4. Step 4: Claim the rebate (up to ₹25,000 or ₹12,500, as applicable) in your income tax return (ITR).

What is Marginal Relief under Section 87A?

Marginal relief under Section 87A: Before elaborated discussion of Marginal Relief, let us first see what the Income Tax Department has enacted regarding Section 87A of the I.T Act, 1961 w.e.f 01.04.2024.

Check on the below link of Income Tax Department regarding the same:

Rebate of income-tax in case of certain individuals.

Section 87A. An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of twelve thousand and five hundred rupees, whichever is less.

The following proviso shall be inserted in section 87A by the Finance Act, 2023, w.e.f. 1-4-2024 :

Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income—

(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;

(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.

Marginal Relief under Section 87A : Key Points

1. The maximum rebate under the new Tax regime is ₹25,000 for FY 2024-25 & AY 2025-26. It is completely wrong. No one can avail of this max rebate of ₹25,000.
2. One can claim a max rebate of ₹20,000 only. This is because the Finance Act 2023 regarding Section 87A has remained the same in FY 2024, but the enhanced tax slab from ₹300,000- ₹600,000/- in FY 2023-24 has been changed to ₹300,000-₹700,000/- in FY 2024-25. However, it has not been considered in the Finance Act 2024 regarding the rebate pronouncement.

Particulars	New Tax Regime
Income Threshold for Rebate	₹7,00,000 for FY 2024-25 & AY 2025-26
Maximum Rebate Amount	₹25,000 for FY 2024-25 & AY 2025-26
Tax @5% for ₹300,000- ₹600,000 in FY 2023-24	Tax @5% for ₹300,000- ₹700,000 in FY 2024-25
Max rebate for Income up to Rs 7,00,000 for the FY 2023-24 ,₹25,000(15000+10000)	Max rebate for Income up to ₹7,00,000 for the FY 2024-25 & AY 2024-25= ₹20,000

So, one can check that in FY 2024-25 & AY 2025-26 no one can avail maximum rebate of ₹25,000/- for net income up to ₹7,00,000. It is a maximum ₹20,000. But section 87A claims it to be ₹25,000 which seems erroneous.

You want to read the below topic:

How is Marginal Relief under Section 87A Calculated?

The concept of marginal relief ensures that the additional tax payable on income exceeding ₹7,00,000 under the new tax regime does not exceed the actual income exceeding the rebate threshold.

Here’s a detailed table illustrating the rebate and tax calculation for a net income of ₹7,05,000 under the new tax regime for FY 2024-25 and AY 2025-26, incorporating marginal relief:

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Particulars	Amount (₹)
Net Taxable Income	₹7,05,000 (7,80,000-75,000)
Rebate Threshold	₹7,00,000
Excess Income Over Rebate Threshold	₹5,000
Tax Calculation (Before Rebate):
– Income up to ₹3,00,000	Nil
– Income from ₹3,00,001 to ₹7,00,000 (₹4,00,000 @ 5%)	₹20,000
– Income from ₹7,00,001 to ₹7,05,000 (₹5,000 @ 10%)	₹500
Total Tax Without Rebate	₹20,500
Rebate Under Section 87A	Not Applicable (Income > ₹7,00,000) but Marginal Relief is allowed
Tax Payable Without Marginal Relief	₹20,500
Excess Income Exceeding ₹7,00,000	₹5,000
Rebate allowed (20,500-5000)	₹15,500
Marginal Relief Adjustment:
– Additional Tax Payable (₹20,500)	Limited to Excess Income (₹5,000)
Final Tax Payable After Marginal Relief	₹5,200(5000+4% Cess)

Explanation of Marginal Relief U/S 87A

1. Excess Income: The taxpayer’s income exceeds ₹7,00,000 (rebate threshold) by ₹5,000.
2. Tax Without Rebate: ₹20,500 is calculated as the total tax payable.
3. Marginal Relief Adjustment: The additional tax payable due to losing the rebate is capped at ₹5,000 (equal to the excess income). Therefore, the taxpayer’s final tax liability is ₹5,000, ensuring fairness.

This ensures that the taxpayer does not suffer a disproportionately high tax liability for marginally exceeding the rebate threshold.

Rebate under section 87A for AY 2025-26: Practical Considerations

1. Choice of Tax Regime: Taxpayers should evaluate which regime suits them better. Those with fewer deductions may find the new regime more beneficial due to its higher rebate threshold and income brackets.
2. Proper Documentation: Ensure accurate reporting of income and deductions to claim the rebate successfully.
3. Awareness of Limits: Any taxable income exceeding ₹7,00,000 (new tax regime) or ₹5,00,000 (old tax regime) disqualifies the taxpayer from availing of the rebate.
4. Implications for Senior Citizens: While senior citizens already enjoy a higher basic exemption limit, they can also claim the rebate if their income falls within the specified thresholds.

Frequently Asked Questions (FAQs) on Rebate U/S 87A for FY 2024-25

1. Can NRIs Claim Rebate Under Section 87A for AY 2025-26?

No, the rebate is available only to resident individuals.

2. What Happens If Income Exceeds ₹7,00,000 Under the New Tax Regime?

The taxpayer loses the eligibility for the rebate, and the full tax liability applies as per slab rates. However marginal relief is applied when tax payable is excess over the excess income exceeding Rs. 7 Lkah under new tax regime. Finally the tax payable is capped to the extra income i.e. Rs. 5,000 as shown in the above table.

3. Is the Rebate Automatically Applied?

No, taxpayers must claim the rebate while filing their Income Tax Return (ITR).

4. Does the Rebate Apply to Senior Citizens?

Yes, senior citizens are eligible if they meet the income and residential criteria.

5. What is the standard deduction for FY 2024-25?

The standard deduction for FY 2024-25 is Rs. 75,000 under new tax regime and Rs. 50,000 under old tax regime.

5. What is the maximum income when rebate will be zero for FY 2024-25 & AY 2025-26?

₹7,97,222 is the gross total income(GTI) and ₹7,22,222 is the net taxable income(NTI), when no marginal relief can be applied and as a result the rebate amount will also be zero.

articulars	Amount (₹)
Gross Total Income	₹7,97,222
Deductions (if applicable)	₹75,000
Net Taxable Income	₹7,22,222
Tax Calculation (as per slab rates):
– Income up to ₹3,00,000	Nil
– Income from ₹3,00,001 to ₹7,00,000 (₹4,00,000 @ 5%)	₹20,000
– Income from ₹7,00,001 to ₹7,22,222 (₹22,222 @ 10%)	₹2,220
Total Tax Before Rebate	₹22,220
Rebate Under Section 87A	Not Applicable (Net Income > ₹7,22,222)
Total Tax Payable Before Cess	₹22,220
Health and Education Cess (4%)	₹889
Final Tax Payable	₹23,110

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Summary of Tax Payable

• Tax Liability: ₹22,220
• Cess (4%): ₹889
• Final Tax Payable: ₹23,110

Since the net taxable income (₹7,22,222) exceeds the ₹7,00,000 rebate threshold, no rebate under Section 87A is available, and the full tax liability applies.

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Conclusion: Rebate under section 87A for AY 2025-26

Section 87A serves as a crucial relief measure for individual taxpayers in India, significantly reducing their tax burden. For FY 2024-25 and AY 2025-26, the higher threshold under the new tax regime makes it especially attractive for those with taxable incomes up to ₹7,00,000.

Taxpayers must carefully assess their income structure and deductions to maximize their benefits under this provision. By understanding and leveraging Section 87A, individuals can ensure compliance while optimizing their tax savings.