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Published on:

December 27, 2024

Udeetta Sarma

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Income Tax Rebate under Section 87A

Tax is a legal and financial obligation, that every person who earns income through various means has to perform but in certain specific situations government favours lower-income basis people by providing so many easy steps. One of those provisions is the rebate under Section 87A of the Income Tax Act, 1961 which provides large benefits to certain taxpayers in terms of relief from taxation.

This blog will cover the tax rebate, how it is calculated and what benefits have been released about this as well so that taxpayers can make the best use of this available tax relief.

What is Section 87A of the Income Tax Act?

Tax Relief for Individual Taxpayers, brought by Section 87A on the table is a major provision of the act under the title Income-tax Act, 1961. The benefit of the rebate is limited to those qualified individuals who wish to reduce their tax obligations. The main purpose of this section is to give relief money from taxes as far as the lower and middle-income groups people whose taxes are not too heavy.

To learn more about income tax laws, refer to ‍Section 133(6) of the Income Tax Act.

Key Features of Section 87A

Taxpayer Focus:

Section 87A applies only to individual taxpayers being Residents of India It does not include other entities like; Companies, Firms, or Hindu Undivided Families (HUFs).

Threshold of Income:

That means the rebate is available in case only if net taxable income doesn't exceed certain limits

₹7,00,000 in the new tax regime.
₹5,00,,000 in the old tax regime.

Maximum allowable rebate:

The maximum amount of rebates that may be claimed in any tax regime:

More than ₹25,000 under the new tax regime.
As much as ₹12,500 older tax regime

No Double Benefits:

The relief is only to be considered after determining the gross tax liability and does not affect revenue straight.

Eligibility Criteria for Claiming the Rebate

To belong to this Section 87A rebate, the individual has to meet with following conditions :

Residential Status:

The person should be a resident under the Income Tax Act. Residents are not.

Income Limits:

With the current tax system, a person shouldn't have a total income greater than or equal to Rs 7 lakh (after deductions under permissible sections)

Total taxable income should not be more than ₹5,00,000 in the old tax regime.

For Every AgeGroupp:

This rebate is valid for a person belonging to any of the age groups, elder citizens or super-aged people.

Detailed Calculation of Rebate under Section 87A

There are a few steps to calculating the rebate Let’s break it down:

Determine Gross Total Income:

It is however composed of all your income including salary, house property, business profits and gains from capital.

Deductions To Apply (for the Old Tax Regime)

Deductions under the old tax regime The deductions such as those under Section 80C (up to Rs.1,50,000), Sec.6500(School Fees for children) and others are allowed.EOF These deductions are not allowed in the new tax regime.

Calculate Taxable Income:

Deduct the allowable deductions (if under the old regime) from your gross total Income to arrive at net taxable income.

Compute Tax Liability:

Now tax rates will be as per the selected scheme For example in the new tax regime for FY 2023-24.

₹0–₹3,00,000: Nil
₹3,00,001–₹6,00,000: 5%
₹6,00,001–₹9,00,000: 10%

Apply Rebate:

Deduct the rebate amount from tax liability (if taxable income is within an eligible threshold)

Health and Education Cess:

Now, multiply the net tax liability by 4%, this would be Health and Education Cess after the deduction of the rebate.

Example Calculations

Example 1: New Tax Regime
Suppose Mr. Arun, a 35-year-old resident, has a total income of ₹6,90,000 for FY 2023-24.

Taxable Income: ₹6,90,000 (no deductions applicable under the new regime).
Tax Calculation:

some text
- ₹0–₹3,00,000: Nil
- ₹3,00,001–₹6,00,000: 5% of ₹3,00,000 = ₹15,000
- ₹6,00,001–₹6,90,000: 10% of ₹90,000 = ₹9,000
- Total Tax = ₹15,000 + ₹9,000 = ₹24,000
Rebate: Since taxable income is under ₹7,00,000, a rebate of ₹24,000 applies, reducing the tax liability to zero.

Example 2: Old Tax Regime
Suppose Ms Kavita, aged 40, has a gross total income of ₹5,40,000 and claims ₹1,00,000 as deductions under Section 80C.

Taxable Income: ₹5,40,000 - ₹1,00,000 = ₹4,40,000
Tax Calculation:

some text
- ₹0–₹2,50,000: Nil
- ₹2,50,001–₹4,40,000: 5% of ₹1,90,000 = ₹9,500
- Total Tax = ₹9,500
Rebate: ₹9,500 (since taxable income is under ₹5,00,000).
Tax Payable: ₹0 (after rebate).

You might also be interested in 115BAC of Income Tax Act: New Tax Regime Explained.

Benefits of Section 87A

Lower Tax Burden:

The rebate can drastically cut tax liability and is particularly valuable for those who earn the least.

Promotes Tax Compliance:

It encourages individuals to reveal other sources of income while filing returns.

Flexible Tax Regime Preference:

Identify the regime that provides more savings and choose that one.

Key Considerations for Taxpayers

Correct Tax Regime:

Check your Income and Deductions to decide whether the old regime or new tax Regime would lead lowest tax liability.

Exclusions in New Tax Regime:

The new regime does not allow for deductions and exemptions like HRA, and 80C which can drive the decision.

Effect of Thresholds:

If the increase in taxable income is beyond some prescribed limits, then the taxpayer will no longer be eligible to avail rebate and tax liability goes up.

Recent Updates

Section 87A would continue under the Union Budget 2024 with an aim to provide some relief from Tax Liabilities & Extended Set-off for FY. Nevertheless, given the government's incentivising towards a simpler new tax regime, it is essential to revisit financial planning every year in order to save more.

Conclusion

The rebate under Section 87 A of the Income Tax Act,1961 is a very important provision for Individual taxpayers as it provides well-needed respite to taxpayers who are working with moderate income levels. Taxpayers can minimize their financial burden substantially by understanding its nuances and strategizing tax payments. Section 87A ensures that regardless of deploying the new or old tax regime, there is a suitable balance in which you are not dodged by taxes paid.

No legislation is done until it has left both chambers and been signed into law by the Governor, but taxpayers may want to consider consulting their financial advisor or tax expert in preparation for new ways they might be assessed a portion of transportation costs.

Easiest Way To File Your Taxes with Swipe

Confused concerning tax calculations and related rebates like the one in Section 87A? Swipe right with a plan for a Tax-Free Season! Thanks to our user-friendly tools, extensive knowledge base and custom tips — your filing is easy while making sure everything is correct. Whether opting for an old or new tax regime, Swipe will guide you through your deductions. Begin your taxation journey with Swipe today!

FAQ

1. Who can avail of the rebate under Section 87A?

The rebate is only available to individual taxpayers who are residents iofIndia, and have a taxable income of up to ₹7 lakh under the new tax regime or ₹5 lakh if they opt for the old/existing tax regime. Other non-residents and entities are not allowed.

2. How to Claim Ta axe Rebate under Section 87A?

The rebate up to a maximum of ₹25,000 under the new tax regime or ₹12,500 under the old tax slab is applicable based on taxable income.

3. Is the rebate available under Section 87A common in both tax regimes?

As we know, the rebate is in place under both regimes and yes you earn up to that amount but at different income thresholds beyond which entitlements are reduced; maximum towards the value of rehab 'income' price.

4. Does the rebate under Section 87A apply before or after Health and Education Cess?

The rebate is deducted from the total tax liability before charging 4% Health and Education Cess.

5. Whether the rebate under Section 87A be available to senior citizens?

A Senior Citizen and a very senior citizen are only eligible to avail of the rebate if they fulfil this criterion.

6 . What is the rebate under the new tax regime?

Under the new tax regime, taxpayers having taxable income up to ₹7 lakh can avail of a rebate of up to ₹25,000 under Section 87A.

7. Can we claim a rebate on short-term capital gain?

Short-term capital gains as per Section 111A are not eligible for a rebate as per Section 87A.

8. What is the standard deduction for the new tax regime? A standard deduction of ₹50,000 for salaried individuals/pensioners is available from FY 2023-24.

9. What is the marginal rebate in the new tax regime?

A marginal rebate helps individuals whose income is marginally above ₹7 lakh not lose the whole rebate available under section 87A

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