The Government of India allows taxpayers with lower annual income to get tax rebate under Section 87A of the Income Tax Act, 1961. Under this Act, your income tax liability becomes nil if your total annual income is up to Rs. 5,00,000.
Since its introduction by the Finance Act 2003, the law has been amended from time to time to reduce the tax burden of individuals with lower income. Presently, the maximum tax rebate allowed is Rs. 12,500.
Now, let us check the details of the income tax rebate under Section 87A.
Individuals have to satisfy the following conditions to be eligible for rebate u/s 87A:
Follow the given steps to calculate the income tax rebate:
Step 1: List down all the incomes in a financial year and categorise them.
Step 2: Calculate your gross annual income for the financial year. This should include income from all sources, including salary, house rent and capital gains from investments etc.
Step 3: Write down all the eligible deductions from your overall income. This includes all available deductions under various sections of Chapter VIA such as these:
Step 4: Subtract the deductions from your total income. If the result is equal to or less than Rs. 500,000, you can claim a rebate under Section 87A.
Also read: How To Use Online Income Tax Calculator?
The following example will demonstrate how to claim tax rebate u/s 87A:
Mr Patel has a gross annual income of Rs. 6.75 lakh. He has allocated Rs. 1 lakh to Section 80C investments, Rs. 50,000 in NPS and has paid health insurance premium of Rs. 25,000.
Given are the steps to calculate his tax rebate:
Step 1: First, add all of his eligible tax deductions. Total deductions = Rs. 1,00,000 + 50,000 + 25,000 = Rs. 1,75,000.
Step 2: Subtract these deductions from his gross annual income of Rs. 6,75,000. His net taxable income = Rs. 6,75,000 – 1,75,000 = Rs. 5,00,000.
Step 3: Next, we will compute his total tax liability. The calculation is given below:
5% of Rs. (5,00,000 – 2,50,000) = Rs. 12,500
Step 4: To find out this tax liability after rebate, subtract Rs. 12,500 from the above amount. Hence, he would have to pay no tax for that year.
Tax rebate of up to Rs. 12,500 available under Section 87A can be claimed against the following tax liabilities:
You cannot set off your tax liability for long-term capital gains from listed shares and equity funds payable after an initial exemption of Rs. 1,00,000.
Since FY2020-21, individual taxpayers can choose between two tax regimes- old and new concessional one. The old regime would allow taxpayers to avail existing tax deductions and exemptions available under different sections of the Income Tax Act, 1961.
The following table lists the tax rates for individuals other than senior and super senior citizens.
|Net Annual Income||Rate of Income Tax|
|Up to Rs. 2,50,000||Nil|
|Rs. 2,50,000 to 5,00,000||5%|
|Rs. 5,00,000 to 10,00,000||20%|
|Above Rs. 10,00,000||30%|
The Financial Act 2020 introduced a new tax regime that offered lower tax rates and additional tax slabs. However, one had to forego most of the tax exemptions and deductions available under the old regime. The following are the tax rates under the new regime.
|Taxable Income||Income Tax Rate|
|Up to Rs. 250,000||Nil|
|Rs. 2,50,001 to 5,00,000||5%|
|Rs. 5,00,001 to 7,50,000||10%|
|Rs. 7,50,001 to 10,00,000||15%|
|Rs. 10,00,001 to 12,50,000||20%|
|Rs. 12,50,001 to 15,00,000||25%|
|Above Rs. 15,00,000||30%|
Also read: Income Tax Slab and Rates 2021-2022
Any Indian citizen residing in the country can get tax rebate under Section 87A if their net annual income does not exceed Rs. 5 lakh. The amount of rebate is 100% of their income tax payable or Rs. 12,500, whichever is lower and does not include education cess.
Senior citizens (60 years or older) with annual income up to Rs. 3,00,000 do not have to pay any income tax. For super senior citizens (80 years or above), the lowest tax slab with no income tax applicable is Rs. 5,00,000.
If the total income of a taxpayer exceeds Rs. 50 lakh, a surcharge is applicable on the income tax. The following are the rates of surcharges for different annual incomes:
Only individuals with no business income can switch between new and old tax regimes every financial year. Individuals with business income have once in a lifetime opportunity to switch back to the old regime after they have opted for the new one.
Section 87A allows individuals to claim a tax rebate of up to Rs. 12,500 for individuals with an annual income of up to Rs. 5 lakh. Tax liability at a 5% rate for these individuals can be a maximum of Rs. 12,500, which is covered by the rebate.
No, individuals do not need to submit any document for claiming rebate under Section 87A of the Income Tax Act. One only needs to submit proofs of exemption and deduction that he/she claims for a year.
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