Rebate u/s 87A: Resolve Section 87A Issues Before 15th January 2025

Rebate u/s 87A of the Income Tax Act provides tax relief to taxpayers whose total income does not exceed a specified limit.

It allows a reduction in tax liability up to a maximum specified amount, if their total income is below a certain threshold.

Important Update

On 5th July 2024, the Income Tax Department updated the ITR utility which was not allowed to claim rebate u/s 87A for any special rate incomes, including STCG under Section 111A.

Now, the IT Department has been allowing taxpayers to rectify errors and claim the Rs.25,000 rebate u/s 87A, which was impacted by sudden changes on 5th July 2024.

Change in Rebate Rules

Rebate in case of Capital Gain

Before 5th July 2024

• Section 87A rebate was available for STCG u/s 111A and other special rate incomes.

• Exception: Only the rebate was not allowed for LTCG under Section 112A.

After 5th July 2024

• Section 87A rebate is no longer available for any special rate incomes by removing the Rs. 25,000 rebate for incomes under Rs. 7 lakh in the new tax regime, including STCG under Section 111A.
• This change was sudden, with no formal notification or circular, leaving taxpayers unaware.

Issues faced by Taxpayers when Rebate u/s 87A Denied for STCG

Situation

A taxpayer filed an ITR along with the short-term capital gains (STCG) u/s 111A and claimed a rebate under Section 87A.

During CPC processing, the rebate for STCG was disallowed, even though it was allowed in the ITR utility during filing.

Reason for Disallowance

• Post 5th July 2024: The CPC following the new rules i.e., updated utility where the Section 87A rebate is not available for incomes taxed at special rates, including STCG under Section 111A.

• This aligns with the clarified position that rebates apply only to income taxed at normal slab rates.

Impact

• Taxpayers those who filed ITRs (especially ITR 2 & ITR 3) have faced this issue due to misalignment between the older filing utility and the updated CPC processing system.

• Many taxpayers received demand notices stating they had improperly claimed the rebate.

What Taxpayers Should Do Now?

ITR Filed Before 5th July 2024

• If you have received a demand notice, file a revised return using the updated utility and claim the rebate if eligible.
• This can resolve the demand notice and allow you to claim refunds due.

Note:

• You can also use the revised utility to correct your filing and claim the Rs. 25,000 rebate under Section 87A.

Revised ITR Deadline

The due date to file revised ITRs has been extended from 31st December 2024 to 15th January 2025.

Key Action for Taxpayers

If department has changed the revised ITR date from 31st Dec 24 to 15th Jan 25, taxpayers must take the benefit by filing revised return claim the rebate.

You can file revised ITR on or before 15th January 2025 to rectify errors and claim the rebate.

How much Rebate u/s 87A is eligible?

Under Old Tax Regime

• Taxpayer must be a resident individuals.
• A rebate of upto Rs. 12,500 is allowed.
• If the total income of such individual does not exceed Rs. 5,00,000.

Under New Tax Regime

• Taxpayer must be a resident individuals.
• A rebate of upto Rs 25,000 is allowed.
• If the total income of such individual does not exceed Rs. 7,00,000.

Note : Rebate is available on the tax computed before charging of Health and Education Cess @ 4%.

Who cannot claim the benefit of Rebate u/s 87A?

• HUF
• Firms
• Companies
• Non-resident Individuals
• Senior citizens above 80 years of age

Click here for Applicable Income Tax Slab For FY 2023-24

Steps to claim Rebate under Section 87A

• First calculate gross total income for the financial year.
• Subtract eligible deductions such as LIC and tax savings investments from your gross total income.
• Calculate your total income after reducing the tax deductions.
• If your total income does not exceed Rs 7 lakh under the new tax regime or Rs 5 lakh under the old tax regime, you can claim the rebate.
• The maximum rebate for the Assessment Year 2024-25 can be claim is Rs 25,000 under the new tax regime and Rs 12,500 under the old tax regime.

Example

Let us know with an example how rebate can be claimed:

Under New Tax regime

Particulars	No Rebate	Rebate
Total Income	7,52,000	6,51,000
Less : Deduction 80C to 80U	NA	NA
Total Taxable Income	7,52,000	6,51,000
Tax on Total Income	30,200	20,100
Rebate u/s 87A	Nil	20,100
Tax Payable	30,200	Nil

Under Old Tax Regime

Particulars	No Rebate	Rebate
Total Income	7,50,000	6,50,000
Less : Deduction 80C to 80U	1,50,000	1,50,000
Total Taxable Income	6,00,000	5,00,000
Tax on Total Income	32,500	12,500
Rebate u/s 87A	Nil	12,500
Tax Payable	32,500	Nil

Rebate Limit for the Previous Years

Financial Year	Limit on total taxable Income	Rebate allowed u/s 87A
2023-24	Rs. 7,00,000 (New tax regime) Rs. 5,00,000 (Old tax regime)	Rs. 25,000 Rs.12,500
2019-20 to 2022-23	Rs. 5,00,000	Rs. 12,500
2017-18 to 2018-19	Rs. 3,50,000	Rs. 2,500
2016-17	Rs. 5,00,000	Rs. 5,000
2013-14 to 2015-16	Rs. 5,00,000	Rs. 2,000

Conclusion

The tax rebate under Section 87A was introduced to help resident individuals including seniors, reduce their tax liability.
This provision supports economic well-being, contributing to a fairer and more inclusive tax system.

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