According to Salary Slip, Section 87A was introduced by the Government in 2013-14 to support individuals in paying income tax. This Section 87A provides a rebate on your taxable income if does not exceed the prespecified limit for the given financial year. The amount of the refund under Section 87A for FY 2023-24 & FY 2022-23 [(AY (2024-25) & AY (2023-24)] has not altered under the old or new income tax regimes. Nonetheless, from FY 2023-24, due to a change in the slab rates under the new tax regime, the rebate threshold was altered. Under the new regime, a resident with taxable income up to Rs 7,00,000 is eligible for a tax rebate.
What is an Income Tax Rebate?
Under some circumstances, an individual is eligible for some tax concessions from the Income Tax Department, which is known as an Income tax rebate. An individual can claim a tax rebate if he/she pays more tax in a financial year than they need to pay. To avail a tax rebate, one must compute their tax liability thoroughly and file the income tax return within a given period.
What is Income Tax Rebate Under Section 87A of Income Tax Act?
Section 87A of the Income Tax Act provides tax relief to taxpayers whose taxable income does not exceed Rs 5,00,000 per year. In simple words, if an individual’s taxable income is more than Rs 5,00,000, then he/she is not liable for this tax rebate. Hence, Section 87A provides a maximum refund of 100% up to Rs.12,500 each fiscal year.
Earlier, under the old income tax regime for the financial year 2023-24, the tax rebate was set at Rs 5,00,000 but under the new income tax regime for the financial year 2024-25, it has increased up to Rs 7,00,000. So, if an individual has a taxable income of less than or equal to Rs 7,00,000, he/she can avail of section 87A of Income Tax Act.
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When was Section 87A Introduced?
Section 87A of Income Tax Act was first introduced in 2013 and has been in working since then with certain revisions over the years. In 2019, the updates were made and as per them, any individual with an annual taxable income of up to Rs 5 lakhs is eligible for a tax concession of Rs 12,500. This means that anyone who earns less than Rs 5 lakhs per year is completely free from income tax, which allows them to save money on income tax in India. Earlier, it was Rs 3.5 lakhs and a tax rebate of only Rs 2,500 was available but in the financial year 2018-19 this was changed. Now, as per the new regime of the 2024-25 financial year, one is eligible for a tax rebate of Rs 25,000.
What are the Steps to Claim Rebate Under Section 87A?
Here’s a step-by-step guide to claim a tax rebate under Section 87A of Income Tax.
- Calculate the gross total income for the financial year.
- Exclude any tax breaks you have from any insurance, policies, investments, and any other tax-saving resources.
- Now calculate your total income as per the Income Tax Act, 1961.
- When submitting your income tax return (ITR), declare your gross income and tax deductions.
- Claim a tax rebate if your taxable does not exceed Rs 7 lakhs under the new regime and Rs 5 lakhs under the old tax regime.
- For the fiscal year 2024–2025, the maximum refund under section 87A is Rs 25,000 under the new tax regime and Rs 12,500 under the optional tax regime.
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Eligibility Criteria to Avail Section 87A of the Income Tax Act
To be eligible to avail tax rebate under section 87A, one must fulfill these criteria:
- Individuals must be a resident of India.
- Your total income, after cutting the deductions under Chapter VI-A (Section 80C, 80D, and more), does not exceed Rs 5 lakh in a fiscal year.
- Both men and women can avail of this tax rebate.
- Only a maximum rebate of INR 12,500 can be availed under this section for FY 2023-24 and Rs 25,000 for FY 2024-25.
Things to Consider for Rebate Under Section 87A
- Before adding the 4% health and education cess, the rebate can be used for the overall tax.
- Only Indian citizens can avail of this rebate.
- Citizens above the age of 80 are not eligible for this rebate.
- Corporations, firms, and HUFs cannot benefit from this tax relief.
- The rebate amount is less than the maximum allowed under Section 87A.
- Finally, the old and new tax regimes both permit the use of Section 87A.
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Conclusion
Filing an ITR can be a cumbersome process and claiming rebates under different sections requires careful and calculative planning. At some regular intervals, the government initiates some planning to reduce the tax burden on taxpayers. Tax rebates under section 87A are beneficial as senior citizens up to the age of 80 can also benefit from this. The new regime has also increased the amount fro taxable income up to Rs 7 lakhs. It will be beneficial for small and lower-middle taxpayers, especially those working at a lower level, and reduce their tax liability.
FAQs
1) Who is eligible for the 87A rebate?
Ans:- Indian individual citizens, who are up to the age of 80 and whose taxable income does not exceed Rs 5,00,000 under the old regime and Rs 7,00,000 under the new regime can avail of this tax rebate under Section 87A.
2) How is Section 87A rebate calculated?
Ans:- To calculate tax rebate under Sectio 87A, first, calculate your gross total income and then exclude the available deduction under Sections 80C to 80U. Now, if your total income is up to Rs 5 lakhs under the old regime then you are eligible for a tax rebate of Rs 12,500 before health and education cess.
3) What is the 87A rebate on agricultural income?
Ans:- Yes, resident individuals’ income from agricultural sources can seek a tax break under section 87A.
4) What is 87A rebate in new tax regime?
Ans:- Under the new regime of Section 87A of the Income Tax Act gives tax rebate on taxable income of Rs 7,00,000. The maximum amount under the new regime of Section 87A is Rs 25,000.
5) What is Section 87A for senior citizens?
Ans:- Section 87A gives tax rebates to senior citizens of age up to 80.