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Income tax rebate under Section 87A Explained under new regime

By Rishabh Chamoli | 2023-02-10

Section 87A of the Income Tax Act 1961 provides a tax rebate for Indian citizens whose total annual income does not exceed Rs 7 lakh after Chapter VIA of Section 80C deductions. Inserted in Finance Act, 2003, this income tax rebate can be enjoyed by individuals and not by other entities such as Hindu undivided families (HUF), an association of persons (AoP), a company, or a firm.

A rebate in Income tax is a specific amount realized as a refund upon the payment of the tax every financial year. Under several sections of the Income Tax Act, 1961, different rebates are provided to Indian taxpayers with low income. One such benefit that can be availed of is under Section 87A. Read on to know about the eligibility criteria and find out how it is useful for young aspiring homebuyers.

What is Section 87A?
In order to reduce the Income tax burden on individual taxpayers in the lower salary range, the Central government introduced rebates under Section 87A of the Income Tax Act, 1961. As per Union Budget tabled in February 2023, the government hiked the net taxable income for getting the rebate to Rs 7 lakh from Rs 5 lakh, under the new regime.

Earlier, Section 87A benefit allowed tax exemption of Rs 12,500 in the single financial year, which has now been extended to Rs 25,000 in one financial year. So, due to this exemption, the non taxable annual income limit has gone up from Rs 5 lakh to Rs 7 lakh.

How is it useful for aspiring homebuyers?
Aspiring homebuyers can use this section to enjoy tax benefits. Even after reducing the gross taxable annual income by using Section 80C to 80T, they can use a home loan as per Section 24B for tax exemption.

Section 87A can be used after a taxpayers IT liability is calculated. By applying this section, a taxpayer can get a tax rebate and enjoy the benefits of home loan interest in a better way.