Taxpayers in India are now navigating the complications of the Income Tax Act and seeking ways to optimize their tax liabilities. One notable provision that can significantly benefit individual taxpayers is the rebate offered under Section 87A.
In both the preceding and current income tax structures, there has been no alteration in the rebate amount granted under Section 87A for the fiscal years 2021-22 and 2022-23 (Assessment Years 2022-23 and 2023-24). An individual with a taxable income of up to ₹5,00,000 remains eligible for a tax rebate of ₹12,500, or the amount of tax payable (whichever is less).
However, there has been a modification in the rebate amount under Section 87A for the fiscal year 2023-24 (Assessment Year 2024-25) under the new income tax regime. Individuals with a taxable income of up to ₹7,00,000 will receive a tax relief of ₹25,000. It is worth noting that the rebate under the former tax regime remains consistent, i.e., ₹12,500 for income up to ₹5,00,000.
How Much is the Rebate Allowed under Section 87A in India?
If an individual’s total taxable income is up to ₹7,00,000, they will be eligible for the following tax breaks under the new tax regime for the fiscal year 2023-24:
- ₹25,000 or the applicable tax (whichever is lower)
- It is the same as earlier, ₹12,500, under the prior tax structure.
Steps to Claim a Tax Rebate under Section 87A
Outlined below are the procedures to avail of a tax rebate under Section 87A:
- Start by calculating the gross total income for the relevant financial year.
- Assess the tax deductions applicable based on the investments, tax-saving activities, and other eligible factors.
- After accounting for the tax deductions, review the total income.
- File the income tax returns, where they will need to disclose both their tax deductions and gross income.
- The maximum amount permissible for claiming a tax deduction under Section 87A of the Income Tax Act, 1961, is ₹12,500.
Example of Rebate Calculation under Section 87A
For individuals below 60 years of age for AY 2023-24:
Source of Income (FY 2023-24)
|
Income (₹)
|
Gross total income
|
6,50,000
|
Less: Deduction* under section 80C
|
1,50,000
|
Total income
|
5,00,000
|
Income-tax (@ 5% from ₹2.5 to 5 lakh)
|
12,500
|
Less: Rebate u/s 87A
|
12,500
|
Tax payable
|
Nil
|
Things to Remember While Availing of Rebate under Section 87A in India
Consider the following points when utilizing the rebate under Section 87A:
- The rebate applies to the overall tax amount before incorporating a health and education cess of 4%.
- Only individuals are qualified to seek the rebate provided under this section.
- Senior citizens aged above 60 years and below 80 years can take advantage of the rebate offered by Section 87A.
- Super senior citizens aged above 80 years are ineligible to claim rebates under Section 87A.
- The rebate amount will be capped at the limit specified under Section 87A or the total income tax payable (prior to cess), whichever is lower.
- The Section 87A rebate is applicable under both the old and new tax regimes.
What Tax Liabilities are Covered Under Rebate?
Section 87A rebate can be claimed against tax liabilities on:
- Regular income, subject to taxation at the applicable slab rates.
- Long-term capital gains are covered by Section 112 of the Income Tax Act. (Section 112 pertains to long-term capital gains arising from the sale of any capital assets, excluding listed equity shares and equity-oriented schemes of mutual funds.)
- Short-term capital gains from listed equity shares and equity-oriented schemes of mutual funds are taxed at a fixed rate of 15% under Section 111A of the Act.
Eligibility for Claiming Rebate Under Section 87A for the Fiscal Year 2023-24
Individuals are eligible to avail of the rebate under Section 87A for the financial years 2023-24, provided the following conditions are met:
- The overall income, post the deduction adjustments under Chapter VI-A (Section 80C, 80D, etc.), does not surpass ₹5 lakh in a financial year.
- The tax rebate is capped at ₹12,500. If an individual’s total tax liability is less than ₹12,500, they will not be required to make any tax payments.
- Note that the rebate will be applied to the total tax before incorporating the health and education cess of 4%.
Final Thoughts
As taxpayers embark on the journey of complying with the income tax regulations for FY 2023-24, they must be aware of provisions like Section 87A. Leveraging rebates can result in significant tax savings for eligible individuals and HUFs. However, it is advisable to seek professional advice or refer to the latest amendments in the Income Tax Act to ensure accurate and up-to-date information.
Understanding and optimizing tax benefits, such as the rebate under Section 87A, can contribute to a more tax-efficient financial plan for individuals and families in the upcoming financial year.
Key Takeaways
- If an individual’s total taxable income is up to ₹7,00,000, they will be eligible for tax breaks.
- The rebate applies to the tax amount before incorporating health and education of 4%.
- Senior citizens aged above 60 years and below 80 years can also take advantage of the rebate.
- The rebate amount will be capped at the limit specified under Section 87A or the total income tax payable.
