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Income Tax Rebate Under Section 87A

TeamAckoJan 18, 2024

If you're not familiar with the rebate under Section 87A, don't worry. We'll give you all the information you need in this article. We'll provide an overview of the rebate and explain how it can benefit taxpayers like you.

Contents

What is Tax Rebate under Section 87A?
Eligibility for Tax Rebate under Section 87A
Types of taxpayers eligible for the rebate
Availability of Tax Rebate under Section 87A
- Tax rebate under both old and new tax regimes
The Impact on Your Finances
Calculation of rebate based on income levels
How to Claim the Tax Rebate u/s 87A
- Step-by-step guide to calculating the rebate amount
- Calculating the tax liability after claiming the rebate
Benefits and Implications of Section 87A Rebate
Wrapping up!
Frequently Asked Questions (FAQs)

What is Tax Rebate under Section 87A?

If you're an Indian resident with an annual income not exceeding Rs. 5,00,000, you're in luck. Here's what you need to know:

Eligibility: Resident individuals with a total taxable income under Rs. 5,00,000.
Rebate Amount: Up to Rs. 12,500 or the total tax payable, whichever is lower.
Tax Slabs: This rebate is for folks in the basic income tax slab.

This isn't just a tax break; it's a financial cushion. The income tax rebate rebate is applied after all your tax calculations are done, directly reducing your tax liability. For example, if you owe Rs. 10,000 in taxes, this rebate makes that a big, round zero.

Eligibility for Tax Rebate under Section 87A

Section 87A of the Income-tax Act provides a tax rebate for individual taxpayers, offering a significant benefit to those whose income falls within the specified limit.

To be eligible for the tax rebate, an individual must meet the following criteria:

Their total income (after deductions) should not exceed the specified limit, which is subject to change each financial year.
They should be a resident of India.
They should not be a part of any Hindu Undivided Family (HUF).
They should not have any income from sources outside of India.

Types of taxpayers eligible for the rebate

The tax rebate under Section 87A is applicable to individuals. However, the eligibility criteria differ based on the age and income bracket:

Individual taxpayers below the age of 60: If their total income is below the specified limit, they are eligible for the tax rebate.
Senior citizens (between the ages of 60 and 80): They are eligible for the rebate if their total income does not exceed the specified limit.
Super senior citizens (above the age of 80): The tax rebate is available to them if their total income falls within the prescribed limit.

It is important to note that the tax rebate under Section 87A is applied after all deductions and exemptions have been taken into account. This makes it an attractive benefit for eligible taxpayers, helping them reduce their tax liability and potentially increasing their disposable income.

Availability of Tax Rebate under Section 87A

Tax rebate under both old and new tax regimes

In the old tax regime, if you earn up to Rs. 5 lakh a year, you can claim a tax rebate of Rs. 12,500. This can directly decrease your tax liability, providing a substantial advantage for individuals with limited income.

Switch to the new tax regime, and the story remains largely the same. You're still eligible for the Rs. 12,500 rebate if your annual income doesn't exceed Rs. 5 lakh. But here's the catch: you'll have to give up certain tax deductions and exemptions that were available under the old system. It's vital to weigh your options and decide which regime offers you the most tax relief.

The Impact on Your Finances

The rebate under Section 87A can have significant impacts on your financial planning, providing real-life benefits beyond just numbers on a paper.

Save more for long-term capital gains in equity-oriented mutual funds
Plan for education and other future expenses
Reduce your overall tax burden

Calculation of rebate based on income levels

The tax rebate under Section 87A is calculated as follows:

Determine your total income after deducting applicable deductions and exemptions.
If your total income is less than or equal to Rs. 5 lakh, you are eligible for the maximum rebate amount of Rs. 12,500.
If your total income exceeds Rs. 5 lakh, the rebate amount gradually decreases until it reaches zero at a certain income threshold.

It should be noted that the tax rebate is directly applied to one's tax liability, resulting in a reduction of the total amount owed. By using this rebate, taxpayers can effectively decrease their tax burden and have more disposable income.

How to Claim the Tax Rebate u/s 87A

Step-by-step guide to calculating the rebate amount

Rebates under section 87A of the Income Tax Act is a great way for individuals in lower income brackets to reduce their tax liabilities. In order to claim the rebate, individuals must follow these steps:

Determine your eligibility

Must be a resident of India.
Total income less than Rs. 5,00,000.
Only for individual taxpayers, not HUFs.

Calculate your tax liability

Find total income after all deductions, like those under section 80C and 80D.
Apply the tax slab rates to this income.

Apply the rebate

If your total income is less than Rs. 5,00,000, you are eligible for a rebate of up to Rs. 12,500.
For example, if your tax liability is Rs. 10,000, you can claim a rebate of Rs. 10,000, reducing your tax liability to zero.

File your tax return:

Ensure that you fill out the appropriate sections of the tax return form to claim the rebate under section 87A.

By following these steps, individuals can effectively claim the tax rebate under section 87A and reduce their tax liabilities. It is important to consult with a tax professional or refer to the Income Tax Act for specific guidelines and eligibility criteria.

Calculating the tax liability after claiming the rebate

The rebate under section 87A allows individuals to reduce their tax liability by a certain amount. To calculate the tax liability after claiming the rebate, follow these steps:

Step 1: Determine your total income for the financial year.
Step 2: Apply the appropriate income tax slab rates based on your total income.
Step 3: Calculate the income tax liability before claiming the rebate.
Step 4: Check if you are eligible for the rebate under section 87A and calculate the rebate amount.
Step 5: Subtract the rebate amount from the income tax liability calculated in step 3.
Step 6: The resulting amount is your tax liability after claiming the rebate.

It is important to note that the eligibility criteria and rebate amount under section 87A may vary from year to year. Therefore, it is recommended to refer to the latest income tax rules and regulations or consult a tax professional for accurate calculations.

Benefits and Implications of Section 87A Rebate

Section 87A rebate is a boon for eligible taxpayers in India. Introduced in the Finance Act of 2013, it's a tool that helps people with an annual income under INR 5 lakh. Here's what it does:

Reduces tax liability by up to INR 12,500
Increases disposable income
Offers tax relief for salaried employees and small business owners

Wrapping up!

The rebate under section 87A of the Indian Income Tax Act offers individuals in lower income brackets the opportunity to decrease their tax liabilities. Eligible taxpayers can reduce their tax liability by a maximum of INR 12,500 per year, depending on their total income. By familiarising themselves with the eligibility criteria and following the outlined steps, individuals can successfully claim the rebate and take advantage of the tax relief it offers.

Frequently Asked Questions (FAQs)

Below are some of the frequently asked questions on Rebate Under Section 87a

Can I claim the rebate under Section 87A if I have income from capital gains?

Yes, you can claim the rebate under Section 87A even if you have income from capital gains. However, your total income (after deductions) should not exceed the specified limit of Rs. 5,00,000

Is the rebate under Section 87A available for non-resident Indians (NRIs)?

No, the rebate under Section 87A is only available for resident individuals. NRIs are not eligible for this rebate.

Can I claim the rebate under Section 87A if I have income from a business or profession?

No, the rebate under Section 87A is not available for income from a business or profession. It is only available for income from other sources, such as salary, interest, and rental income.

Is the rebate under Section 87A applicable for the financial year 2023-24?

The eligibility criteria and rebate amount under Section 87A may vary from year to year. It is recommended to refer to the latest income tax rules and regulations or consult a tax professional for accurate calculations.

Can I claim the rebate under Section 87A if I have already paid all my taxes?

No, the rebate under Section 87A is only applicable if you have a tax liability. If you have already paid all your taxes, you cannot claim this rebate.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet, and is subject to changes.