What is A Tax Rebate? What Is Section 87A? New Tax Regime Explained

Tax rebate under Section 87A was introduced by the Government of India in 2013-2014. While presenting the Union Budget 2023-24 on February 1, 2023, Finance Minister Nirmala Sitharaman announced a change in this income tax rebate under the new income tax regime. Before we look at the changes announced, we must know what a tax rebate is and understand more about Section 87A.

Simply put, an income tax rebate is a form of a refund on your income tax. The Income Tax (IT) Department provides this refund or rebate under certain circumstances. Taxpayers are liable to receive an income tax rebate when they may have paid more taxes in a financial year than what they owe to the IT Department. To avail an income tax rebate, you must ensure that you compute your tax liability accurately compute and file your income tax returns within the stipulated period.

Under the provisions of Section 87A of the Income Tax Act, an individual Indian resident whose total income for the financial year does not exceed the prespecified limit, is provided with a rebate of 100% of the income tax payable. Till FY 2022-23, the income limit to claim a rebate under Section 87A was ₹5 Lakh. This means that for FY 2022-23, an individual whose income was up to ₹5 Lakh was not required to pay any income tax.

The maximum income limit to claim a rebate under Section 87A has been amended from time to time. In the Union Budget 2019, the government increased the maximum cap for the net taxable income to claim a rebate under Section 87A to ₹5 Lakhs.

In the Union Budget 2023, Finance Minister Nirmala Sitharaman announced that the rebate under Section 87A will be hiked from ₹5 Lakh to ₹7 Lakh, bringing a big sigh of relief for India’s growing middle-class population. “Currently, those with income up to ₹5 Lakh do not pay any income tax in both old and new tax regimes. I propose to increase the rebate limit to ₹7 Lakh in the new tax regime. Thus, persons in the new tax regime, with income up to ₹7 Lakh will not have to pay any tax," she said while presenting the Union Budget 2023.

This means that from FY 2023-24, an individual taxpayer, who is a resident in India, will now be entitled to claim an income tax rebate of 100% of the income tax payable on a total income not exceeding ₹7 Lakh.

Learn more about the income tax changes under the new regime after Budget 2023.