Rebate u/s 87a: How to Claim Tax Rebate Under Section 87A?

How to Claim Tax Rebate Under Section 87A?Rebate u/s 87a: How to Claim Tax Rebate Under Section 87A? What is the Eligibility Criteria and How to Calculate the Rebate Amount Under Section 87A?

Taxes are mandatory financial contributions imposed by the government on individuals and businesses. These taxes are used to fund various government services, infrastructure projects, and social welfare programs.

In India, the primary taxes levied on individuals include income tax, goods and services tax (GST), and various other indirect taxes.

What is a Tax Rebate?

A tax rebate is a form of refund or discount that an individual receives from the Income Tax Department under specific circumstances.

If an individual pays more taxes in a financial year than they owe to the government, they are eligible to receive a tax rebate. To claim a tax rebate, it is important to accurately calculate your tax liability and file your income tax returns within the prescribed time frame.

Introduction to Section 87A

Section 87A of the Income Tax Act is a provision that offers a tax rebate to individuals with lower taxable incomes. It was introduced in the financial year 2013-14 with the primary objective of providing tax relief to those with modest incomes.

The rebate under Section 87A is available only to resident individuals and is not applicable to non-residents, corporations, firms, or Hindu Undivided Families (HUFs). Additionally, while regular taxpayers and senior citizens (aged 60 to 80 years) can claim the rebate, super senior citizens (aged 80 years and above) are not eligible for this benefit.

Eligibility Criteria and Income Limit to Claim Tax Rebate Under Section 87A

To claim the rebate under Section 87A of the Income Tax Act, 1961, you must meet the following eligibility criteria:

  • You can claim the 87A rebate only on the gross total tax liability before adding the health and education cess of 4%.
  • Only resident individuals are eligible to avail the rebate under Section 87A.
  • Senior citizens (those between 60 and 80 years of age) can claim the rebate under Section 87A.
  • However, super senior citizens (those above 80 years of age) are not eligible to avail the 87A rebate.
  • The maximum amount you can claim as the 87A rebate shall be either the limit specified under Section 87A (₹12,500) or the total tax liability before cess, whichever is lower.
  • The Section 87A rebate is available under both the old and new income tax regimes. Hence, you can claim the rebate under Section 87A for all financial years.

Eligible Tax Liabilities

The rebate can be utilized against the following tax liabilities:

  • Tax on regular income, which is computed based on the applicable income tax slabs.
  • Tax on long-term capital gains arising from sources other than listed equity shares and equity-oriented mutual funds, as per Section 112 of the Income Tax Act.
  • Tax on short-term capital gains from listed equity shares and equity-oriented mutual funds, taxed at a flat rate of 15% under Section 111A.

Ineligible Tax Liabilities

The rebate cannot be adjusted against the tax liability on long-term capital gains from listed equity shares and equity-oriented mutual funds, which is taxed under Section 112A.

Example of Calculation of Rebate under Section 87A

Here is an example to demonstrate how the rebate under Section 87A can be calculated for an ordinary resident individual taxpayer for the financial year 2022-23 (Assessment Year 2023-24):

Sources of Income (FY 2022-23) Income (₹)
Gross Total Income ₹6,50,000
Less: Deduction under Section 80C ₹1,50,000
Total Income ₹5,00,000
Income Tax (at 5% from ₹2.5 to ₹5 lakh) ₹12,500
Less: Rebate under Section 87A ₹12,500
Net Tax Payable ₹0

In this example, since the total taxable income is ₹5,00,000, which is within the threshold limit, the individual is eligible for the maximum rebate of ₹12,500 under Section 87A. As a result, their net tax liability becomes zero.

Related Articles:

Three Things to Consider about Section 87A

While the tax rebate offered under Section 87A can provide substantial relief to various citizens across the country, there are a few points to keep in mind:

  • Non-Resident Indians (NRIs) cannot avail the tax rebate under Section 87A.
  • Corporations, firms, or Hindu Undivided Families (HUFs) are not eligible for the benefits of this tax rebate.
  • While senior citizens (aged 60 to 80) can avail this tax rebate, super seniors (aged 80 and above) cannot.

The tax rebate offered under Section 87A is a useful means of saving income taxes in India during a financial year. However, it is equally important to consider tax-saving investments such as life insurance policies, which not only provide tax benefits but also offer financial security for your family’s future.

How to Calculate the Rebate Amount Under Section 87A?

The maximum rebate amount that an eligible individual can claim under Section 87A for the financial year 2022-23 (Assessment Year 2023-24) is Rs. 12,500. However, the actual rebate amount you can claim will depend on your tax liability before cess.

Here’s how you can calculate the rebate amount:

Step 1: Calculate your gross total income from all sources, such as salary, business, capital gains, and other sources.

Step 2: Deduct eligible deductions under sections 80C to 80U from your gross total income. This will give you your net taxable income.

Step 3: Compute your tax liability based on the applicable tax rates for the financial year. Remember, the rebate under Section 87A is applicable only on the tax liability before adding the health and education cess.

Step 4: If your net taxable income is below the specified limit (Rs. 5,00,000 for FY 2022-23) and your tax liability before cess is equal to or less than Rs. 12,500, you can claim the rebate under Section 87A. The rebate amount will be the lower of your tax liability or Rs. 12,500.

For example, let’s consider Mr. Amar again, whose net taxable income for FY 2022-23 is Rs. 3,50,000. Based on the tax rates, his tax liability before cess is calculated to be Rs. 5,000. Since his net taxable income is below Rs. 5,00,000 and his tax liability before cess is less than the maximum rebate of Rs. 12,500, he can claim the full rebate of Rs. 5,000 under Section 87A. Effectively, his net tax payable after the rebate would be zero.

How to Claim the Rebate the Rebate Under Section 87A?

To claim the rebate under Section 87A, you need to file your income tax return and ensure that you correctly report your income and claim the rebate. Most tax-filing software and utilities will automatically calculate and apply the rebate if you meet the eligibility criteria.

If you have already paid your taxes for a financial year and are eligible for the rebate, you can claim it while filing your tax return. The rebate amount will be adjusted against your tax liability, and any excess amount paid will be refunded to you.

It’s important to note that the rebate under Section 87A is calculated on the tax liability before adding the health and education cess. The cess will still be applicable on the remaining tax liability after claiming the rebate.

Historical Changes in Section 87A

Since its introduction, the government has revised the income limit and maximum rebate amount under Section 87A several times. Here’s a quick overview of the changes over the years:

Financial Year Limit on Total Taxable Income Maximum Rebate Amount
2021-22 ₹5,00,000 ₹12,500
2020-21 ₹5,00,000 ₹12,500
2019-20 ₹5,00,000 ₹12,500
2018-19 ₹3,50,000 ₹2,500
2017-18 ₹3,50,000 ₹2,500
2016-17 ₹5,00,000 ₹5,000
2015-16 ₹5,00,000 ₹2,000
2014-15 ₹5,00,000 ₹2,000
2013-14 ₹5,00,000 ₹2,000

As you can see, the income limit and maximum rebate amount have been revised over the years, with the most recent change being an increase in the maximum rebate amount to Rs. 12,500 from the financial year 2019-20 onwards.

Other Considerations

While the rebate under Section 87A is a valuable tax benefit, there are a few additional points to keep in mind:

  • The rebate is available only to resident individuals and not to non-residents, corporations, firms, or HUFs.
  • If your tax liability before cess exceeds the maximum rebate amount, you can claim only the maximum rebate amount specified under Section 87A.
  • The income limit and maximum rebate amount are subject to change based on the government’s policies and budgetary announcements. It’s essential to stay updated with the latest provisions and announcements to ensure compliance and accurate tax planning.
  • While tax rebates and deductions are important, it’s also crucial to plan for your financial well-being and secure your family’s future. Investing in life insurance plans, such as term insurance plans, can not only provide financial protection but also offer tax benefits under various sections of the Income Tax Act.

Conclusion

The tax rebate under Section 87A of the Income Tax Act is a valuable provision that aims to provide tax relief to individuals with lower incomes. By understanding the eligibility criteria, calculation methods, historical changes, and other considerations, you can make the most of this rebate and reduce your tax burden legally.

Remember, while tax planning is essential, it’s also crucial to prioritize your overall financial well-being and secure your family’s future. Consulting with qualified tax professionals or referring to official guidelines from the Income Tax Department can help ensure compliance and accurate tax planning.

Frequently Asked Questions

1. Are NRIs eligible to claim a rebate under Section 87A?

A: No, non-resident Indians are not eligible to claim a rebate under Section 87A, as only taxpayers qualified as residents are permitted to claim this rebate.

2. How can I calculate the rebate under Section 87A?

A: To calculate the rebate under Section 87A, follow these steps:

  • Calculate your gross income and subtract the available deductions under Sections 80C to 80U.
  • If your net taxable income is less than ₹5 lakhs, you are eligible for a rebate of up to ₹12,500 on the tax payable before the health and education cess.

3. Can one claim a rebate under Section 87A after they have paid their taxes for a financial year?

A: Yes, you can claim a rebate under Section 87A while filing your tax return, even if you have already paid the taxes for a financial year.

4. Is the 87A rebate available on agricultural income?

A: Yes, resident individuals earning income from agricultural sources can also claim the tax rebate under Section 87A.

Leave a Reply