Taxpayers can reduce their tax liability through the rebate under Section 87A of the Income Tax Act. Individuals can claim the rebate if the total income (after Chapter VIA reductions) is up to Rs. 5 lakh in a financial year.
What is the eligibility criteria for claiming a tax rebate under Section 87A and how to claim it? Keep reading to get the details here.
Section 87A of the Income Tax Act helps individuals reduce their net income tax liability if their income is less than or equal to Rs 5 lakhs per annum. It was introduced under the Finance Act in 2003 and at the time, the maximum tax rebate amount under Section 87A was Rs. 2000. Since then the maximum amount has been raised. After Union Budget, 2019, the net taxable income was increased to Rs. 5 lakh and the maximum limit of Section 87A was increased to Rs. 12,500. In other words, individuals with an income lower than Rs. 5 lakh per year are totally exempted from income tax.
Tax rebate under Section 87A is available for both old and new tax regimes for Financial Year 2021-2022 (The assessment Year 2022-2023). The limit remains the same, i.e. Rs. 12,500
But how to claim a tax rebate under 87A? The following step-by-step instructions can help.
Step 1: Calculate the gross income for the fiscal year. This includes income from all sources such as salary, business, investments, etc.
Step 2: Next, deduct the tax amount under Section 80C, 80U and 24(b) (if you have home loan interest payment) if you have opted for the old tax regime. The amount you get is the net taxable income.
Step 3: If the net taxable income comes lower than Rs. 5 lakhs, you can claim a maximum tax rebate of Rs. 12,500.
Let us take a look at the tax rebate amounts for various taxable incomes lower than Rs. 5 lakhs.
|Taxable Income||Rebate Under Section 87A|
|Rs. 3,00,000/-||Rs. 2500/-|
|Rs. 3,50,000/-||Rs. 5000/-|
|Rs. 4,00,000/-||Rs. 7500/-|
|Rs. 5,00,000/-||Rs. 12500/-|
Also Read – Income Tax Slabs And Rates
|Financial Year||Taxable Income Limit||Amount of Rebate|
|2013-14||Rs. 5,00,000||Rs. 2,000|
|2014-15||Rs. 5,00,000||Rs. 2,000|
|2015-16||Rs. 5,00,000||Rs. 2,000|
|2016-17||Rs. 5,00,000||Rs. 5,000|
|2017-18||Rs. 3,50,000||Rs. 2,500|
|2018-19||Rs. 3,50,000||Rs. 2,500|
|2019-20||Rs. 5,00,000||Rs. 12,500|
|2020-21||Rs. 5,00,000||Rs. 12,500|
|2021-22||Rs. 5,00,000||Rs. 12,500|
The following example highlights the rebate calculation for people aged below sixty years in AY 2022-2023:
|Income Source (FY 2021-2022)||Income (in Rs.)|
|Minus: Deductions u/s 80C||1,50,000|
|Tax (5% from above Rs. 2.5 lakh to Rs. 5 lakh)||7,500|
|Minus: Rebate Under Section 87A||7,500|
A person can claim deductions under some of the following Sections:
If you want to avail relief under section 87A, go through the facts below:
This section of the Income Tax Act offers rebates against taxes on:
Given below are some calculations of the relief under section 87A available for Indian residents (aged below 60 years) earning different levels of income:
|Income (in Rs.)||Tax Before Cess (in Rs.)||Rebate (in Rs.)||Tax + 4% Cess (in Rs.)|
Shyam (a resident aged 61 years) receives a pension amounting to Rs. 4,000 per month. In addition, he invested in equity-based funds in November 2012 but sold the units in May 2020.
His taxable long-term capital gain is Rs. 4,60,000. He has no other income other than gains on equity-based funds and pension. What is the tax payable for 2020-21?
Shyam’s exemption limit will be Rs. 3,00,000. He will adjust this exemption limit against long-term capital gains on equity-related funds. However, the adjustment against regular income is made before the consideration of the LTCG. In this situation, he has an LTCG of Rs. 4,60,000 and a pension of Rs. 48,000 (Rs. 4000 x 12).
Hence, on adjusting the exemption slab with pension, he needs to adjust Rs. 2,52,000 (Rs. 3,00,000 – Rs. 48,000) against LTCG. Now, the remaining LTCG amounts to Rs. 2,08,000 (Rs. 4,60,000 – Rs. 2,52,000). The tax rate on LTCG of equity-based funds is 10% if the gain exceeds Rs. 1,00,000.
For Shyam, a tax of 10% is charged on Rs. 1,08,000 (Rs. 2,08,000 – Rs. 1,00,000). So, the tax payable is Rs. 10,800. The rebate will not get adjusted against the LTCG tax of equity-related funds (as per Section 112A). Shyam will be paying an education and health cess of 4% plus Rs. 10,800.
The rebate applicable under Section 87A of the Income Tax Act is a useful tool for saving taxes during a fiscal year. However, there are other means of getting tax benefits, such as ELSS mutual funds.
Navi Long Term Advantage Fund is an Equity Linked Saving Scheme that enables an investor to save taxes. This scheme offers a deduction of Rs. 46,800 (maximum) u/s 80C. A person can start investing in this fund through entities such as Groww, Kuvera, Zerodha and Paytm Money.
Ans: Yes, senior citizens over 60 years of age and below 80 years are eligible to get a tax rebate under Section 87A of the Income Tax Act.
Ans: Tax rebate under Section 87A is only available for individuals. HUF and its members cannot claim this rebate.
Ans: No, a surcharge is not applicable in the calculation of rebate under Section 87A. Only those with an annual income lower than Rs. 5 lakh are eligible for this rebate.
Ans: The rebate is applicable only to Indian residents. So, individuals who are non-residents cannot avail of the rebate under Section 87A. Resident individuals who earn from agricultural sectors can also claim the rebate. Companies, firms and HUFs are not eligible for this tax rebate.
Ans: The government accumulates income tax via the following means:
> Tax collected at source
> Tax deducted at source
> Payment by taxpayers such as self-assessment tax and advance tax
In India, the direct tax is charged on an individual’s income, whereas the indirect tax is charged on expenses.
Ans: A person whose total earning is above Rs. 2,50,000 will be paying income tax. The tax liability depends on the current income tax slab. The taxpayers include companies, corporate firms, local authorities, body of individuals, association of persons, HUF and artificial juridical persons.
Ans: The TDS is computed on an individual’s present CTC, which comprises various elements such as dearness allowance, special allowance, basic salary and medical allowance. A company deducts TDS on an employee’s salary at the ‘average rate’ of tax.
Ans: Firstly, a person needs to ascertain his gross income. After that, he needs to subtract the deductions (as available under different Sections) from the gross income. The outcome will be his taxable income. Now, the person should apply the tax rate prescribed for the income bracket in the financial year to calculate the tax liability.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
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