Jigar M. Patel
International Tax Attorney
The provisions of Rebate u/s. 87A of the Income-tax Act, introduced with a view to grant relief to small individual taxpayers, resident in India, became popular since FY 2019-20, when the threshold limit was raised up to Rs. 5 lakhs, granting maximum tax relief of up to Rs. 12,500.
Magic Wand of Tax Rebate – Zero Tax on Rs. 10 Lakhs
A salaried employee Mr. Mehta’s gross total income for FY 2023-24 is likely to be Rs. 10 lakhs. He is in a position to plan deductions as under:
| Eligible Deductions | Amount (Rs.) |
| Sec. 16 – Standard Deduction from Salary | 50,000 |
| Sec. 80C – PF, LIP & Children’s Tuition Fees | 1,50,000 |
| Sec. 80CCD – NPS Contribution | 50,000 |
| Sec. 24 – Interest on Housing Loan | 2,00,000 |
| Sec. 80D – Health Insurance for Family | 25,000 |
| Sec. 80D – Medical Expenditure of Parents | 50,000 |
| Total | 5,25,000 |
Keeping in view his Taxable Income of Rs. 4,75,000, after deductions of Rs. 5,25,000 from his Gross Total Income of Rs. 10,00,000, the income tax thereon works out to Rs. 11,250. In this case, since Mr. Mehta has opted for the choice of the Old Tax Regime to avail deductions, he can enjoy Tax Rebate u/s. 87A up to Rs. 12,500 and therefore his effective tax would work out to Rs. Zero.
Zero Tax on Rs. 7.5 Lakhs even without Deductions
Until FY 2022-23, taxpayers opting for the New Tax Regime, not availing any deductions, complained of inequity in terms of absence of level playing field with their counterparts who preferred the Old Tax Regime with the benefit of deductions.
Finance Act, 2023 addressed this issue with the introduction of a higher income threshold limit of Rs. 7 lakhs for eligibility of Rebate and doubled the tax benefit up to Rs. 25,000, for resident individuals opting for the New Tax Regime u/s. 115BAC, which does not permit availing of deductions.
Moreover, salaried taxpayers have come to be offered their favourite Standard Deduction of Rs. 50,000 even under the New Tax Regime. Effectively, this can translate into a gross income limit of Rs. 7.5 lakhs in case of salaried employees, who do not wish to block their earnings just for claiming higher tax deductions, but still enjoy Zero Tax.
For FY 2023-24, the income tax payable on taxable income of Rs. 7 lakhs under the prescribed rates of the New Tax Regime works out to Rs. 25,000. With the higher limit of eligible Rebate of up to Rs. 25,000, the effective tax payable would work out to Rs. Nil.
