With a view to providing tax relief to individual taxpayers who are in a lower tax bracket, a tax rebate is provided under Section 87A.
Reetu | Jul 19, 2024 |
Income Tax Rebate under Old and New Tax Regime for FY 2023-24
This article discusses an important benefit provided by the income tax, which is rebate u/s 87A of the income tax Act.
With a view to providing tax relief to individual taxpayers who are in a lower tax bracket, a tax rebate is provided under Section 87A.
Conditions for Rebate:
This rebate is available if the following two conditions are satisfied –
Amount of Rebate:
Under both the old and new income tax regimes, the amount of the rebate under Section 87A for FY 2021-22 and FY 2022-23 [(AY (2022-23) and AY (2023-24)] has remained the same. However, the rebate threshold was changed from the financial year 2023-24 & Onwards.
From the financial year 2023-24 a resident individual with taxable income up to Rs. 5,00,000 is eligible for a tax rebate under the old tax regime, while a resident individual with taxable income up to Rs.7,00,000 is eligible under the new tax regime.
Let’s understand it elaborately:
If a person has a total taxable income of up to Rs.7 lakh and chooses the new tax regime, the following rebate they will be eligible for:
A resident individual paying tax under the old tax regime (shifting out of the new tax regime) for the financial year 2023-24 with a total taxable income of less than Rs.5 lakh would receive a rebate equal to the lowest of the following:
Rebate under Section 87A is not available in the case of a non-resident individual, resident or non-resident HUF/AOP/BOI or any taxpayer other than a resident individual.
Marginal Relief under New Tax Regime – The rebate under section 87A is subject to marginal relief from the assessment year 2024-25. If net income exceeds Rs. 7,00,000 but does not exceed Rs. 7,27,770, income tax on such income cannot exceed the amount by which the net income exceeds Rs. 7,00,000.
Example 1: Tax liability for the Financial year 2023-24 in the case of X (who is a resident individual) in the following situations:
Situation 1 – Net Income: Rs.2,60,000
Situation 2 – Net Income: Rs.3,50,000
Situation 3 – Net Income: Rs.5,00,000
Situation 4 – Net Income: Rs.6,00,000
X does not want to opt-out from the alternative tax regime under section 115BAC.
| Particulars | Situation 1 | Situation 2 | Situation 3 | Situation 4 |
| Net Income | 2,60,000 | 3,50,000 | 5,00,000 | 6,00,000 |
| Income tax on net income | 500 | 5,000 | 12,500 | 32,500 |
| Less: Rebate under section 87A | 500 | 5,000 | 12,500 | Nil |
| Balance | Nil | Nil | Nil | 32,500 |
| Add: Surcharge | Nil | Nil | Nil | Nil |
| Total | Nil | Nil | Nil | 32,500 |
| Add: Health and education cess @4% | Nil | Nil | Nil | 1,300 |
| Tax Liability | Nil | Nil | Nil | 33,800 |
Example 2: Tax liability for the Financial year 2023-24 in the case of Y (who is a resident individual). His net income (computed under the alternative tax regime under section 115BAC (1A)) is as follows:-
Situation 1 – Net Income: Rs.3,10,000
Situation 2 – Net Income: Rs.6,10,000
Situation 3 – Net Income: Rs.7,00,000
Situation 4 – Net Income: Rs.9,00,000
Y does not opt for the regular tax regime under section 115BAC(6).
| Particulars | Situation 1 | Situation 2 | Situation 3 | Situation 4 |
| Net Income | 3,10,000 | 6,10,000 | 7,00,000 | 9,00,000 |
| Income tax on net income | 500 | 16,000 | 25,000 | 45,000 |
| Less: Rebate under section 87A | 500 | 16,000 | 25,000 | Nil |
| Balance | Nil | Nil | Nil | 45,000 |
| Add: Surcharge | Nil | Nil | Nil | Nil |
| Total | Nil | Nil | Nil | 45,000 |
| Add: Health and education cess @4% | Nil | Nil | Nil | 1,800 |
| Tax Liability | Nil | Nil | Nil | 46,800 |
On 5th July, the ITR online utility was updated, and after the update the utility stopped giving the benefit of Section 87A rebate for STCG u/s 111A and other special rate income. Before 5th July, IT Utility and Calculator were allowing 87A rebate against STCG u/s 111A and other special rate incomes other than Long Term Capital Gain (LTCG) u/s 112A where such rebate is specifically barred by Section 112A itself.
Interpretation being followed by the Income Tax Portal
It was provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income does not exceed Rs.700,000, the assessee shall be entitled to a rebate, of an amount equal to 100% of such income-tax or a Rs.25000, whichever is less.
This would mean that in case the assessee has opted for the New Tax Regime, then the rebate shall be available for those income chargeable to tax u/s 115BAC. Income Chargeable under other sections like Short Term Capital Gain (STCG) u/s 111A, 115BBH etc. will not get the benefit of a Rebate.
| Particulars | Situation 1 | Situation 2 | Situation 3 | Situation 4 |
| Salary After Standard Deduction | 690,000.00 | Nil | Nil | 690,000.00 |
| STCG u/s 111A | Nil | 3,10,000 | 6,10,000 | 200,000.00 |
| Net Income | 690,000.00 | 3,10,000 | 6,10,000 | 890,000.00 |
| Income tax on net income | 24,000.00 | 500.00 | 16,000.00 | 54,000.00 |
| Less: Rebate under section 87A | 24,000.00 | Nil | Nil | 24,000.00 |
| Balance | Nil | 500.00 | 16,000.00 | 30,000.00 |
| Add: Surcharge | Nil | Nil | Nil | Nil |
| Total | Nil | 500.00 | 16,000.00 | 30,000.00 |
| Add: Health and education cess @4% | Nil | 20.00 | 640.00 | 1,200.00 |
| Tax Liability | Nil | 520.00 | 16,640.00 | 31,200.00 |
Please note that the Special Rate income has not been considered while calculating rebate u/s 87A, as per the changes made in the Income Tax Utility on 05/07/2024.
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