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Section 87A : Tax Rebate under Section 87A

Tax Rebate

Rebate u/s 87A was introduced by the Government of India in the year 2013-14. 87A rebate offers benefits from your tax liability. Rebate under section 87A can be claimed when your taxable income does not exceed the prespecified limit for the given financial year. For example, for FY 2021-22(AY 2022-23) if your taxable income is up to Rs. 5,00,000 then you do not need to pay any taxes by claiming the benefit of rebate u/s 87A.

You can claim a maximum rebate of up to ₹12,500 under Section 87A of the Income-Tax Act for the financial year 2022-23.

The maximum amount of the 87A rebate has been amended from time to time. In the beginning, the maximum limit of tax rebate under Section 87A of the Income Tax Act was ₹2,000. In the Union Budget, 2016 it was raised to ₹5,000. In the Union Budget, 2017 it was raised ₹2,500, for the individuals whose net taxable income was up to ₹3,50,000. After the Union Budget, 2019, the government increased the net taxable income to ₹5 Lakhs. The maximum limit of 87A rebate was also raised to ₹ 12,500.

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What is an Income Tax Rebate?

An income tax rebate can simply be understood as a form of refund on taxes that you receive from the Income Tax Department under certain circumstances. An individual is liable to receive a tax rebate in the event that he or she pays more taxes in a financial year than they owe to the government. In order to avail a tax rebate, you must make sure to accurately compute your tax liability and file your income tax returns within a particular time period.

What is Income Tax Rebate u/s 87A?

Rebate u/s 87A provides tax benefit to an individual taxpayer if his total taxable income does not exceed the threshold limit of Rs. 5,00,000 for a given financial year. It means if total taxable income of any individual exceeds Rs. 5,00,000, he will not be able to avail tax benefit under section 87A.

When was Section 87A Introduced?

The rebate under Section 87A was first proposed in the year 2013 and has been in effect for several years, with it being updated as recently as 2019. Under the latest provisions of Section 87A, any individual with an annual taxable income of up to Rs 5 lakhs is eligible for an income tax rebate of Rs12,500. This essentially translates to the fact that individuals with an annual income lower than Rs 5 lakhs are entirely exempted from income tax and can effectively save income tax in India.

Section 87A- Then and Now

It is interesting to note that the income tax rebate offered under Section 87A has undergone a number of changes since its introduction in 2013. As recently as the financial year 2018-2019, the income tax rebate under Section 87A was capped at a much lower Rs 2,500. Hence, if your total taxable income was above Rs 3.5 lakhs and your tax liability exceeded Rs 2,500, Section 87A could no longer serve a tax relief purpose for you.

How to Claim Tax Rebate under Section 87A?

As per Income Tax Section 87A, you can claim a rebate of ₹12,500 on your tax liability. Here are the steps involved to claim this 87A rebate:

Step 1. First, compute your gross total income in the previous financial year

Step 2. From this, subtract all the tax deductions that you have claimed for tax saving investments

Step 3. Now, you’ve arrived at your Gross Total Income after tax deductions. This is your taxable income for the financial year (or previous year)

Step 4. Estimate your gross tax liability on the Gross Total Income, but do not add cess to the amount

Step 5. You can claim the 87A rebate on your gross tax liability before cess and arrive at the net tax liability

In case your total income is below ₹5 lakhs, the maximum rebate under section 87A for the AY 2020-21, i.e. ₹12,500 shall bring down your net tax liability to zero.

Rebate u/s 87A for FY 2021-22 AY (2022-23)

Income tax rebate u/s 87A is the same for the FY 2021-22 AY (2022-23) & FY 2020-21 AY (2021-22). As per section 87A, if a resident individual’s total taxable income is up to Rs. 3.5 lakhs then he will receive the benefit of Rs. 2,500 or the amount of tax whichever is lower.

Eligibility Criteria to Claim Income Tax Rebate u/s 87A for FY 2020-21 and FY 2019-20

Here are the eligibility criteria to claim the rebate u/s 87A of the Income Tax Act 1961:

1. You can claim the 87A rebate only on the gross total tax liability, before adding the health & education cess of 4%

2. Only the resident individuals shall be eligible to avail of the rebate under section 87A.

3. Besides, the senior citizens (those who are between 60 and 80 years of age) can claim the rebate under section 87A.

4. However, the Super senior citizens (those above 80 years of age) are not eligible to avail of the 87A rebate.

5. The maximum amount you can claim as 87A rebate shall be either the limit specified under section 87A (₹12,500) or the total tax liability before cess, whichever is lower.

6. Section 87A rebate shall be available under old as well as new income tax regimes. Hence you can claim the rebate under section 87A for both FY 2017-18 and FY 2018-19.

Example of Calculation of Rebate under Section 87A for an Individual below 60 years of age

Here is an example to show how rebate under section 87A can be calculated for an ordinary individual resident taxpayer for FY 2019-20:

Sources of income (FY 2019-20) Income (₹)
Gross total income 6,50,000
Less: Deduction u/s 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 Nil

Rebate u/s 87A for Previous Financial Years

Section 87A was announced by the government from financial year 2013-14. Since then, the maximum amount of the 87A rebate allowed has been amended as under

Financial Year Limit on Total Taxable Income Amount of rebate allowed u/s 87A*
2021-22 Rs. 5,00,000 Rs. 12,500
2020-21 Rs. 5,00,000 Rs. 12,500
2019-20 Rs. 5,00,000 Rs. 12,500
2018-19 Rs. 3,50,000 Rs. 2,500
2017-18 Rs. 3,50,000 Rs. 2,500
2016-17 Rs. 5,00,000 Rs. 5,000
2015-16 Rs. 5,00,000 Rs. 2,000
2014-15 Rs. 5,00,000 Rs. 2,000
2013-14 Rs. 5,00,000 Rs. 2,000

How is Income Tax Rebate Calculated?

To calculate the rebate:

1) Calculate Gross Income - Add up income from all sources like salary, capital gains, house rent and income from other sources.

2) Find the Net Taxable Income - Apply deductions under Section 80 to your gross income, as applicable.

3) For net taxable income equal to or less than Rs.5 Lakh, you can claim rebate under Section 87A.

Three Things to Consider about Section 87A

The tax rebate offered under Section 87A can prove to be a great relief to various citizens across the country. However, here are a few points of note that a taxpayer must keep in mind before thinking about saving income tax in India under Section 87A:

1. This tax rebate under Section 87A cannot be availed by Non Residential Indians, which is NRIs.

2. The benefits of this tax rebate can also not be availed by Corporations, Firms or HUFs.

3. While seniors (aged 60 to 80) can avail this tax rebate, Super Seniors (aged 80 and above) cannot.

The tax rebate offered under Section 87A is certainly a useful means of saving income taxes in India during a financial year. However, it is just important to save taxes with crucial investments such as a life insurance policy that is both tax-saving and financially fruitful.

To avail a trusted life insurance plan to secure your family’s future and save taxes, look no further than Term Plans from Canara HSBC Life Insurance. Term insurance plan provides policyholders with various coverage and payout options as well as an array of useful add-on covers.

Frequently Asked Questions Related to Section 87A

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

Non-resident Indians are not eligible to claim rebate under this section as only the taxpayers qualified as residents are permitted.

2) How can I calculate rebate under 87A?

To calculate rebate under section 87A, calculate your gross income and subtract the available deductions under Sections 80C to 80U. Now, if your net taxable income is less than Rs. 5 lakhs, you are eligible for the rebate upto Rs 12500 on the tax payable before health and education Cess.

3) Can one claim a rebate under section 87A after they have paid their taxes for a FY?

You can claim for a rebate under Section 87A while filing your tax return, in case you have already paid the taxes.

4) Is 87A rebate available on agricultural income?

Yes, resident individuals earning from agricultural sources can also claim tax rebate u/s 87A.

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