Income Tax Rebate Under Section 87A

In the complex realm of income tax, any opportunity to reduce your tax liability is greatly appreciated. Section 87A of the Income Tax Act is one such provision, extremely useful to the eligible taxpayer. This detailed guide will take you deep inside Section 87A, explaining nuances, benefits, and how you can make the best of this tax-saving opportunity.

But first, let’s learn a little bit more about the concept of income tax rebate.
 

What Is An Income Tax Rebate?

An income tax rebate is a tax relief given by the government to an individual or an organisation. depending on some conditions that are preferred in order to influence a particular business or group of taxpayers. However, unlike a tax deduction, which reduces the taxpayers’ total comprehensive income, a rebate directly decreases the amount of tax that is payable.

These rebates are available in a fixed amount based on specific expenses or investments made like education expenses, home loan interest amounts, or contributions made to certain saving schemes.

Income tax rebates are primarily used as incentives to encourage taxpayers to pursue behaviours that are productive to society or boost economic development.
 

What Is Section 87A Of The Income Tax Act?

Section 87A of the Income Tax Act of 1961 allows a rebate on the income tax for all taxpayers individually. This rebate is available to resident individuals whose total income falls below a specified threshold.

Below is information on one of the rebates that are given to resident individuals within a stipulated amount of income.

• For the FY 2024-25 or AY 2025-26, those who are opting for the new tax regime and whose total income is not exceeding ₹7,00,000 are allowed a rebate. The rebate amount is of the extent of ₹ 25000 or the amount of tax actual, whichever is lower.
• Under the old tax regime, a rebate is allowed to resident individuals whose taxable income is up to Rs. 5,00,000. The amount of such rebate shall be equal to the lower of such tax or Rs. 12,500.

This rebate is claimed after assessing the overall tax amount payable; it can lead to the elimination or reduction of other payable taxes based on the applicant’s income or tax computations.
 

What is Section 87A Rebate for Financial Year (FY) 2024-25 and Assessment Year (AY) 2025-26?

The rebate amount to be allowed under Section 87A of income tax would change according to the tax regime and the financial year. Let us discuss that.

For Financial Year 2024-25 (Assessment Year 2025-26)

New Tax Regime:

• Resident Individual having taxable income does not exceed ₹ 7,00,000
• Rebate Amount: Lower of ₹ 25,000/- or amount of tax payable

Old Tax Regime:

• Applicable for resident individuals with a net taxable income up to Rs. 5,00,000
• Rebate: the lower of Rs. 12,500 or the tax payable.

 

How Much Is The Rebate Allowed u/s 87A?

• Rebate amount specified under Section 87A would be equal in old and new tax regime for FY 2023-24 and FY 2022-23. However, in FY 2023-24, the new rebate slab of tax regime will have to be revised taking into account changes that took place in slab rates.
   
• Individuals with taxable incomes up to Rs 5,00,000 have a tax rebate according to the old tax regime, while in the new income tax regime, such an amount is applicable for an income up to Rs 7,00,000

 

Guidelines On How To Claim For Section 87A Rebate For Filing Of The ITR

The steps that are likely to be adopted to claim the rebate under Section 87A in ITR filing include the following:

• Check the Eligibility:
  • You are a resident of India.
  • Your total income has to be less than the prescribed limit – rupees ten lakhs or less. As for the old regime, the amount was Rs. 5,00,000, while for the new precious lifestyle regime was Rs. 7,00,000.
  • Here, you are filing the return in an Individual capacity, not in the capacity of a Hindu Undivided Family(HUF).
     
• Calculate Your Tax Liability:
  • Start with Total Income
  • Less All deductions provided under Section 80 C, 80 D.
  • Applying the applicable tax slab rates helps to obtain base tax liability.
     
• Rebate Application:
  • If your total income is below or up to the said limits, you shall be allowed a rebate of Rs. 12,500 for the old regime and Rs. 25,000 for the new regime.
  • The rebate would be equal to the least tax that you can pay and the greatest sum of rebate that could be claimed.
  • For instance, if the applicable tax liability is Rs. 10,000, the rebate will be Rs. 10,000, and your tax liability will be nil.
     
• File Your Tax Return:
  • Ensure that you complete the relevant Sections of the tax return form to claim the rebate under Section 87A of income tax.
     

What Is The Eligibility Criteria To Claim Income Tax Rebate u/s 87A For FY 2024 – 25 (AY 2025 – 26)?

Section 87A of the Income Tax Act grants a tax rebate to individual taxpayers, offering significant benefits to those with income within a certain limit. To be eligible for this rebate, an individual must satisfy the following criteria:

1. Maximum Income Limit: Your total taxable income should be within the specified limit, which varies in both the old and the new tax regime.

•  Old Tax Regime: Up to ₹5,00,000
•  New Tax Regime: Up to ₹7,00,000

2. Residency Status: You have to be an individual resident in India.

3. Individual Taxpayer: Rebate is only available for individual taxpayers. HUFs are beyond the ambit of this rebate.

4. Source of Income: For claiming this rebate under the provisions of Section 87A, the individuals shall not have any income from sources outside India.
 

Taxpayers Who Are Eligible for the Rebate

Individuals who are granted a tax rebate under Section 87A should fall under either of the below-mentioned criteria:

• Individual Taxpayers Below Age 60: If their total income is less than the specified limit, they are entitled to the tax rebate.
• Senior Citizens (Ages 60-80): If their total income does not cross the given limit, they qualify for the rebate.
• Super Senior Citizens Above Age 80: In case their overall earnings fall within a specified value, then they can apply for this deduction.

It is important to note that all deductions and exemptions are considered before giving any such relief under Section 87A. Hence, this makes the incentive good enough for eligible taxpayers since this would help reduce one's taxable amount and probably raise disposable income levels.
 

Filing For Section 87A Rebate: Required Documents And Process

Now, as hectic as it may sound, the burden for filing tax rebate can be reduced if proper preparation with proper procedure following is done.

The first thing is to ensure that you have all the necessary documents:

• PAN Card: A Permanent Account Number card to be used for identification.
• Form 16: This is an employer-issued form that gives your salary breakup, tax deducted at source, and other income details.
• Income Proof: Salary slips, rent receipts, or any documents relating to your income.
• Deductions proof: Proof of the deductions claimed under various Sections like 80C, 80D, etc. It comprises receipts for investments, insurance premiums, medical expenses, etc.
• Bank Statements: Bank account statements for the relevant financial year.
• Previous Tax Returns: Copies of last year's tax returns — This is optional but very helpful.
   

The process for claiming Section 87A Rebate is as follows:

• Calculate Your Gross Income: Add up your income for the financial year, including salary, house property, capital gains, etc.

• Deduct Eligible Deductions: From this total income, deduct the eligible amounts under various Sections like 80C, 80D, etc.
• Check Eligibility: First, ensure that your taxable income after deductions is less than the amount specified for rebate under Section 87A of the Income Tax. The amount is INR 5,00,000 for the old regime and INR 7,00,000 for the new regime for FY 2024-2025.
• Fill Out The Income Tax Return(ITR) Form: Now select the Return Form in which you want to file the return. For individual taxpayers, it would be ITR-1 or ITR-2. Fill in personal, income and deduction details.
• Tax Payable: Calculate the tax based on the tax slabs.
• Rebate: In the Tax Computation Section, claim rebate under Sec 87A. This will reduce your tax by a maximum of Rs 12,500 in the old tax regime and Rs 25,000 in the new tax regime.
• Submit ITR Form: The filled form has to be checked for errors. The form is then submitted online on the Income Tax Department E-Filling Website.
• Verification: Verify your ITR after submitting. You can verify through electronic modes like Aadhaar OTP or Net banking.
   

What is the Rebate Limit under Section 87A for Previous Financial Years?

Section 87A exemptions have undergone changes from time to time. Let us look at the overall rebate limits in recent times for previous fiscal years:
 

 

Eligibility to Claim Rebate u/s 87A for FY 2022-23

You can claim the rebate benefit under Section 87A for FY 2022-23 in both the old and new tax regimes, provided you meet the following conditions:

• Residency: This must be a resident individual
• Income Limit: No Chapter VI-A deductions shall be taken into account for arriving at a total income of more than Rs. 5 lakh.
• Rebate Amount: The tax rebate amount is up to Rs. 12500. If your total tax payable comes to less than Rs. 12,500, then your tax liability shall be nil.

Please Note- The rebate is applied to the total tax amount before the addition of the 4% health and education cess.

 

 

Eligibility to Claim Rebate u/s 87A for FY 2018-19 and FY 2017-18

• Residency: Can only be a resident individual
• Income Limit: A total income after deducting Chapter VI-A should be less than Rs. 3. 5 lakh
• Rebate Amount: The tax rebate was capped at Rs. 2,500. If your tax payable was Rs. 2,500 or less, your tax liability would be eliminated.

Please Note- The tax rebate is applicable on the total tax before the addition of the health and education cess of 4% (for FY 2018-19) or the education cess of 3% (for FY 2017-18).

 

 

Note:

• The tax payable for FY 2017-18 will be Rs 2,575, including Rs 2,500 plus a 3% cess.
• The tax payable for the FY 2018-19 will be Rs 2,600, comprising Rs 2,500 plus a cess of 4%.
   

Rebate Limit Under Section 87A For All The Financial Years

 

 

Important Considerations

• Application Before Cess:
  The rebate is to be computed on the total tax before the addition of the health and education cess, which is 4%.
   
• Eligibility Criteria:
  As per the language of the Section, only resident individuals are allowed to claim the rebate under this Section.
  
  NRIs and HUFs are also not eligible for this rebate.
   
• Senior Citizens:
  Any individual of 60 years and over, up to and including 80 years, is disallowed from the Section 87A rebate.
   
• Rebate Amount:
  The rebates shall be computed according to the Section 87A and would be equal to the lower limit prescribed under Section 87A and the Income-tax payable before subtracting the cess.
   
• Tax Regimes:
  The rebate under Section 87A is given according to the old regime as well as the new regime of taxation.
   

Rebate against various tax liabilities

1. Normal Income: This includes income that is charged to tax at a standard slab rate.
2. Long-Term Capital Gains: In terms of Section 112, LTCG arises from the sale of any capital asset other than the listed shares and the units of the mutual fund schemes that are related to the equity shares.
3. Short-Term Capital Gains: The Act clearly states in Section 111A that with respect to listed equity shares, the flat rate of 15% is applicable to the equity-oriented schemes of mutual funds as well.

Note:

The rebate under Section 87A cannot be used to offset tax on long-term capital gains acquired from the equity shares and equity-oriented mutual funds under Section 112A.
 

Myths and Facts about Section 87A

However, there are some misconceptions that people have as far as the Section 87A rebate is concerned. Let's clear them up:

Myth: Every individual who files their taxes can apply for the Section 87A rebate.

Fact: Only resident individuals who are attracted to an income within the bar set limits can make use of it. Non-residents and Hindu Undivided Families (HUFs) are ineligible for this rebate.

 

Myth: The rebate is applied after the cess has been added.

Fact: The rebate has to be calculated and is to be adjusted before even the addition of the cess is done.

 

Myth: All senior citizens automatically qualify.

Fact: Only resident senior citizens aged between 60 and 80 years are eligible for the rebate. Super senior citizens (above 80 years) and individuals with income exceeding the specified limit do not qualify.

 

Myth: As the rebate amount is considered, it is fixed at the maximum limit that is offered.

Fact: The rebate amount will be the lesser of the limit specified under Section 87A or the total income tax payable (before cess). It is not a fixed amount but depends on the total tax liability.

 

Myth: Rebate is applicable for all types of income.

Fact: Tax obligations for regular revenue, long-term capital profits in accordance with Section 112, as well as short-term gains in line with Section 111A can avail of this rebate. Nevertheless, taxpayers cannot use this to offset taxes on capital gains accrued from holding equity shares and equity-linked mutual funds schemes as specified by Section 112A.

 

Myth: Rebates are available only under the old tax regime.

Fact: The rebate available under Section 87A is available for both old and new tax regimes.

 

It is crucial to determine them because knowing these facts it is possible to make the necessary corrections and avoid certain mistakes concerning the taxes.
 

Conclusion

Section 87A of the income tax rebate provides a significant financial benefit to eligible taxpayers by reducing their income tax burden. By understanding and utilising this rebate, individuals earning below a certain specified income can effectively lower their tax liability, promoting better financial planning and savings. This rebate serves as an essential tool for supporting lower-income taxpayers, ensuring that their financial obligations are more manageable.
 

Frequently Asked Questions (FAQ)