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Union Budget 2023 – Rebate u/s. 87A enhanced for New Income tax regime

Rebate u/s. 87A under New Income tax regime

In the Union Budget 2023 introduced by Union Finance Minister Smt. Nirmala Sitharaman on 1st February 2023, the focus has been shifted on promoting the New Income tax regime sidelining the speculations of increase in the section 80C limit or section 80D limit. In view of incentivizing the A taxpayers who will opt for the new Income tax regime, the limit of rebate u/s. 87A has been  proposed to be enhanced from Rs. 5 Lakhs to Rs. 7 Lakhs. In the existing provision of Section 87A, the resident individual is not required to pay the tax if the income does not exceeds Rs. 5 Lakhs.

In the Finance Bill 2023, it has been proposed that for the Individuals opting for the New Income tax regime under section  115BAC, the limit for availing the Rebate has been increased from Rs. 5 Lakhs to Rs. 7 Lakhs. Now, if the person opts for the New Income tax regime and his / her income is not exceeding Rs. 7 Lakhs, then there shall be no Income tax payable payable as the rebate of Rs. 25,000/- is available to the taxpayers.

For the taxpayers opting the Old Income tax regime, the rebate limit for section 87A shall stands at Rs. 5 Lakhs, which means that the rebate amount of Rs. 12,500/- is available to the taxpayer if the income does not exceed Rs. 5 Lakhs.

Let us understand the concept with some examples:-

Under Old Income tax regime

ParticularsAmount (in Rs.)
Gross Total Income7,00,000
Less: Deduction under chapter VIA2,00,000
Net Total Income5,00,000
Tax on above12,500
Less: Rebate u/s. 87A12,500
Tax payableNil

 

Under New Income tax regime

ParticularsAmount (in Rs.)
Gross Total Income7,00,000
Less: Deduction under chapter VIA (Not available)
Net Total Income7,00,000
Tax on above25,000
Less: Rebate u/s. 87A25,000
Tax payableNil

So, from the aforesaid examples, we have understand the concept of the Rebate which has been proposed in the Finance Bill 2023.

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