Tax Rebate under Section 87A is one of the important tax rebates we get if our income is within Rs. 5 lakh in a financial year. But this tax rebate limit has been increased in new tax regime from FY 2024-25. So what is the latest Tax Rebate under Section 87A limit in old and new tax regime, are you eligible for this Tax Rebate, and everything you should know about this rebate. Let us address all these queries in this post.
In Budget 2024, Tax Rebate under Section 87A limit was increased from Rs. 5 lakh to Rs. 7 lakh under new tax regime (applicable from FY 2023-24). This Tax Rebate under Section 87A limit is still Rs. 5 lakh in Old regime. This means that under old regime, if your income tax is under Rs. 12,500, you don’t have to pay any tax and under new regime, if your income tax is Rs. 20,000, you don’t have to pay any tax, and that is the meaning of this Tax Rebate under Section 87A.
We will understand all this with the help of calculation examples below.
Tax Rebate under Section 87A under Old and New Tax Regime Video
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Let us now understand Tax Rebate under Section 87A under old and new tax regime in more details.
Tax Rebate under Section 87A Limit under Old Tax Regime
The limit of Tax Rebate under Section 87A under Old Tax Regime in FY 2024-25 is Rs. 12,500., if your taxable income is less than or equal to Rs. 5 lakh.
This means if your income tax (without applying cess) is within Rs. 12,500, you will get this maximum tax rebate of Rs. 12,500 which will cancel out your income tax and your tax liability becomes Rs. 0.
Note that Rs. 12,500 is the maximum limit applied, any tax less than this amount will be cancelled by this rebate.
On the contrary, if your income tax is more than Rs. 12,500, you will not be eligible for this rebate of Rs. 12,500 and hence you have to pay it as income tax.
Let’s understand this with the help of examples in old tax regime. Before checking below examples, you should know about Income Tax Slab Rates for FY 2024-25 for your income tax calculation purpose.
Tax Rebate Example in Old Regime
Let’s say if your taxable income is Rs. 5 lakh, below are the details of the income tax calculation:
| Old Tax Regime | FY 2024-25 |
|---|---|
| Income | Rs. 5,00,000 |
| Income Tax on Slab 5% | Rs. 12,500 |
| Tax Rebate under Section 87A | Rs. 12,500 |
| Rs. Income Tax | Rs. 0 |
As seen above, you need not have to pay any income tax when your taxable income is Rs. 5 lakh or less under old tax regime with Tax Rebate under Section 87A.
Let us take another example where taxable Income is Rs. 5.1 Lakh
| Old Tax Regime | FY 2024-25 |
|---|---|
| Income | Rs. 5,00,000 |
| Income Tax on Slab 5% | Rs. 12,500 |
| Income Tax on Slab 20% | Rs. 2000 |
| Tax Rebate under Section 87A | Rs. 0 |
| Cess of 4% | Rs. 580 |
| Rs. Income Tax | Rs. 15,080 |
As seen above, since your taxable income is above Rs. 5 lakh, you don’t get Tax Rebate under Section 87A. Which means you need to pay the tax with slab 5% = Rs. 12,500 and your total tax liability becomes Rs. 15,080 based on the calculations.
You can also use the income tax calculator for your tax calculation purpose. Below is the screenshot from tax calculator for above example. Notice that we have considered Rs. 5.1 lakh as taxable income after reducing all deductions from gross income.
You can get your taxable income below Rs. 5 lakh by using various deductions and exemptions under old tax regime.
ALSO READ: How to Save Tax on Income above Rs. 5 Lakh
Tax Rebate under Section 87A Limit under New Tax Regime
The limit of Tax Rebate under Section 87A under New Tax Regime in FY 2024-25 is Rs. 20,000 after the updates in income tax slab rates, if your taxable income is less than or equal to Rs. 7 lakh.
In new tax regime, you get additional benefit of tax rebate at the cost of not claiming any deductions. Only standard deduction of Rs. 75,000 can be claimed with new tax regime. Apart from this, there are certain exemptions under new tax regime.
This means if your income tax (without applying cess) is within Rs. 20,000, you will get this maximum tax rebate of Rs. 20,000 which will cancel out your income tax and your tax liability becomes Rs. 0 with new tax regime.
Note that Rs. 20,000 is the maximum limit applied, any tax less than this amount will be cancelled by this rebate.
On the contrary, if your income tax is more than Rs. 20,000, you will not be eligible for this rebate of Rs. 25,000 and hence you have to pay it as income tax.
Let’s understand this with the help of income tax calculation examples in new tax regime.
Tax Rebate Example in New Regime
Let’s say if your taxable income is Rs. 7 lakh after reducing standard deduction of Rs. 75,000, below are the details of the income tax calculation:
| New Tax Regime | FY 2024-25 |
|---|---|
| Income | Rs. 7,00,000 |
| Income Tax on Slab 5% | Rs. 20,000 |
| Tax Rebate u/s 87A | Rs. 20,000 |
| Rs. Income Tax | Rs. 0 |
As seen above, you need not have to pay any income tax when your taxable income is Rs. 7 lakh or less under new tax regime with Tax Rebate under Section 87A.
Let us take another example where taxable Income is Rs. 7.1 Lakh after reducing standard deduction of Rs. 75,000
| New Tax Regime | FY 2024-25 |
|---|---|
| Income | Rs. 7,10,000 |
| Income Tax on Slab 5% | Rs. 20,000 |
| Income Tax on Slab 10% | Rs. 1000 |
| Tax Rebate u/s 87A | Rs. 0 |
| Cess of 4% | Rs. 840 |
| Rs. Income Tax (Calculated) | |
| Marginal Relief makes Income Tax | Rs. 10,400 |
As seen above, since your taxable income is above Rs. 7 lakh, you don’t get Tax Rebate under Section 87A in new tax regime. But since the taxable income is slightly above Rs. 7 lakh, you are eligible for marginal relief in new tax regime, according to which, the tax will be equivalent to the extra amount above Rs. 7 lakh taxable income
Watch below video to understand how Marginal Relief in new tax regime works with examples:
Marginal Relief in New Tax Regime Video
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You can also Download the Income Tax Excel calculator to check slab wise details of income tax calculation. Below is the screenshot for same:
Below is the video on How to Calculate Income Tax in FY 2024-25:
How to Calculate Income Tax FY 2024-25 Excel Video
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Who is eligible for 87A rebate?
If you are selecting Old Tax Regime, you are eligible for Tax Rebate u/s 87A if your taxable income is less than or equal to 5 lakh.
If you are selecting New Tax Regime, you are eligible for Tax Rebate u/s 87A if your taxable income is less than or equal to 7 lakh.
What is the rebate u/s 87A for FY 2024-25?
For FY 2024-25, Tax Rebate under Section 87A limit is Rs. 12,500 (taxable income within Rs. 5 lakh) under Old tax regime and Rs. 20,000 (taxable income within Rs. 7 lakh) under New tax regime.
How do I claim my 87A rebate?
Simply if your taxable income is within 5 lakh or 7 lakh and based on your selection of old or new tax regime in FY 2024-25, you will get tax rebate automatically with these conditions during income tax return filing purpose.
Conclusion
So Rs. 5 lakh and Rs. 7 lakh are the taxable income limits on which you will get Tax Rebate under Section 87A of Rs. 12,500 and Rs. 20,000 respectively in old and new tax regime.
Your main aim must be to reach this magical figures of taxable income by using various deductions and exemptions. Note that only standard deduction of Rs. 50,000 is available in old tax regime and Rs. 75,000 in new tax regime, whereas other commonly used deductions are only available in old tax regime, so plan accordingly.
Some more Reading:
- Standard Deduction in New Tax Regime
- Old vs New Tax Regime Excel Download
- All Deductions allowed for Tax Payers
- How to Calculate Income Tax using Payslip
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Income Tax Calculator App – FinCalC
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