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Understanding Income Tax Rebate Under Section 87A

Understanding Income Tax Rebate Under Section 87A

Introduction:

The Indian income tax system is useful to individuals under Section 87A because it allows for Income Tax Rebate. In this article, we seek to give a full explanation of the rebate, including its requirement, calculation and guidelines involved. Whether you are filing income tax under new or old regime, it is important for you to know about Section 87A. Keep reading to get some ideas about the concession, its capping and how it may assist in reducing your liabilities as regards taxation.

Rebate u/s 87A for FY 2021-22, 2022-23, and 2023-24 (AY 2022-23, 2023-24, and 2024-25):

However, under both the old and new income tax regimes, there is no change in the refund amount under Section 87A for FY 2021-22 and 2022-23 (AY 2022-23 and 2023-24). If you are a resident individual with taxable income up to Rs 5,00,000 then you shall be eligible for a tax rebate of Rs 12,500 or the amount of tax payable whichever is lower. It is notable that the former tax regime has the same rebate amount of Rs.12,500 for incomes not exceeding Rs.5,00,000.

Revised rebate under new income tax regime:

The new income tax regime, which will be effective from FY 2023-24 (AY 2024-25), has changed the rebate amount under Section 87A. Under this regime, if you are a resident individual whose taxable income is up to INR 7,00,000, then you can avail of tax relief worth INR 25,000. The aim of this change in rebate is more advantages to people within this bracket of income. On the other hand, for those with an income of less than Rs 5,00,000 will pay a rebate amounting to Rs 12,500.

Claiming a tax rebate under Section 87A:

To claim a tax rebate under Section 87A, follow these steps:

  1. Calculate your gross total income for the financial year.
  2. Reduce your tax deductions for tax savings, investments, etc.
  3. Determine your total income after deducting relevant tax deductions.
  4. Declare your gross income and tax deductions when filing your Income Tax Return (ITR).
  5. Claim a tax rebate under Section 87A if your total income does not exceed Rs 5 lakh.
  6. The maximum rebate under Section 87A for AY 2022-23 is Rs 12,500.

Eligibility and limitations:

Here are some important points to remember while availing the rebate under Section 87A:

  1. The rebate is applicable to individuals who are residents only.
  2. This discount can be availed by old people aged sixty to eighty.
  3. This discount cannot be applied for by super senior citizens above the age of eighty years.
  4. The amount of the discount will be limited by the lower of either the maximum amount of Section 87A or the total tax payable on income.
  5. It can be received in both old and new tax regimes.

Rebate against various tax liabilities:

The Section 87A rebate can be claimed against the following tax liabilities:

  1. Normal income, taxed as per slab rates.
  2. Long-term capital gains under section 112 of the Income Tax Act.
  3. Short-term capital gains on listed equity shares and equity oriented schemes of mutual funds under section 111A of the Act.

 

This is to inform you that the rebate u/s 87A cannot be set off against tax payable on long term capital gain on equity shares and units of equity oriented mutual fund u/s 112A.

Eligibility for FY 2020-21 and FY 2019-20:

To claim rebate under Section 87A for FY 2021-22 and FY 2020-21, following conditions will have to be satisfied:

  1. If you are a resident individual, and your total income, after reducing deductions under Chapter VI-A (Section 80C, 80D and others), does not exceed Rs5 lakh in a financial year.
  2. The maximum rebate under section 87A is Rs2500. If your total tax payable is less than this amount, you will not be liable to pay any tax.
  3. Before adding the health and education cess of 4% to the total tax, claimants will benefit from the rebate for the purpose of this section.

Conclusion:

This tells us that individuals seeking to optimize their tax planning and reduce their tax liabilities must understand Income Tax Rebate Under Section 87A. You have to consider applicable limits and guidelines whether you qualify for the rebate under old or new income tax regime. Take advantage of this benefit so that you can increase your savings in order to maintain a healthy financial position. Stay informed and seek professional advice on taxes based on your particular circumstances.

 

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

Frequently Asked Questions

Income tax rebate under Section 87A is a benefit provided to individual taxpayers in India, reducing their tax liability by a specified amount.

Individuals resident in India with net taxable income below a certain threshold are eligible for income tax rebate under Section 87A.

The threshold for eligibility is currently set at ₹5,000 for the assessment year 2024-25 and onwards.

Income tax rebate under Section 87A reduces the tax liability of eligible taxpayers by a predetermined amount, resulting in lower tax payments or potential refunds.

No, income tax rebate under Section 87A is applicable only to individual taxpayers and not to Hindu Undivided Families (HUFs), companies, or other types of entities.

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