Income Tax Rebate under Section 87A

Introduction

Section 87A helps people who make less than a certain amount by giving them a tax rebate on their income tax bill. This rebate is applicable only to resident individuals and is subject to certain conditions. The rebate amount and income threshold have been revised over the years. When taxpayers understand how Section 87A works, they can better plan their taxes and pay less tax. 

In this blog, we'll talk about the basics of Section 87A, including who can use it, how to figure out the rebate, and some of the most common questions about it.
 

What is an Income Tax Rebate?

An income tax rebate is a type of refund that individuals may receive from the Income Tax Department if they have paid more taxes than they owe to the government in a financial year. Basically, it's a way for people to get some of the extra tax money they paid back from the government. 

However, it is important to remember that not everyone is eligible for a tax rebate, and specific circumstances must be met in order to receive one. To be eligible, people must accurately figure out how much tax they owe and file their income tax returns by a certain date. By doing this, they might be able to get a rebate and some financial relief from the government in the form of a refund.
 

What is Income Tax Rebate u/s 87A?

Income Tax Rebate u/s 87A is a special part of the Income Tax Act that gives tax breaks to individual taxpayers whose total taxable income is less than Rs. 5,000,000 for a given financial year. People who qualify can apply for this rebate, and the amount of the rebate is calculated as a percentage of the person's tax liability. 

But it's important to know that if a person's total taxable income is more than Rs. 500,000, they won't be able to use the Section 87A tax benefit. In other words, this rebate only applies to taxpayers whose total taxable income is below the government-set limit, and it saves these people a lot of money on their taxes.
 

When was Section 87A Introduced?

Section 87A was introduced in the Income Tax Act of 2013. This regulation was established to provide tax relief to those whose income falls below a certain threshold. Since its introduction, Section 87A has undergone several updates, with the latest provisions being in effect from the financial year 2019–20 onwards. 

Section 87A- Then and Now

Many amendments have been made to Section 87A of Income Tax Act since its inception in 2013. The income tax rebate that this section gives has gone up, which is one of the most important changes. Section 87A provides a tax credit of Rs. 12,500 to people with taxable incomes of up to Rs. 5 lakhs for the 2019-2020 fiscal year. 

This is a big rise over the previous fiscal year, 2018-2019, when the maximum tax refund was just Rs. 2,500. This meant that people with a total taxable income of more than Rs. 3.5 lakh and a tax bill of more than Rs. 2,500 could not take advantage of Section 87A's tax relief. 
 

How to Claim Tax Rebate under Section 87A?

You only need to follow a few easy steps in order to be eligible for a tax rebate under Section 87A.

●    First, you need to compute your gross total income for the previous financial year. 
●    Next, subtract any tax deductions you have claimed for tax-saving investments. This will give you your taxable income for the financial year. 
●    After that, figure out how much gross tax you owe based on your total gross income without the cess amount. 
●    Then, you can claim the 87A rebate on your gross tax liability before the cess amount and arrive at your net tax liability. 
●    Once you've done these things, you can use Section 87A to get a tax rebate and lower your tax bill.
 

Rebate u/s 87A for FY 2021-22 AY (2022-23)

The Section 87A income tax rebate is the same for the fiscal years 2021–2022 and 2022–2023 as it was for the fiscal years 2020–2021 and 2021–2022. A resident person who has a total taxable income of up to 3.5 lakhs may qualify for a tax refund of either 2,500 rupees or the amount of tax owed.

Eligibility Criteria to Claim Income Tax Rebate u/s 87A for FY 2020-21 and FY 2019-20

The following are the requirements necessary to make a claim for the refund under Section 87A of the Income Tax Act of 1961:

1.    Calculation of Tax Liability

The 87A rebate applies solely to the first, pre-health and education-cessation tax bill. That is, the reduction will be applied just to the tax due amount, before the 4% surcharge is included.

2.    Residency Status

Only people who live in the country will be able to take advantage of the Section 87A rebate. Non-resident individuals or HUFs (Hindu Undivided Family) cannot claim the rebate under this section.

3.    Age Criteria

The Section 87A rebate is available to all qualifying residents, as well as senior people (those aged 60–80). Nevertheless, the 87A rebate is not available to those who are 80 or older.

4.    Maximum Rebate Amount

The most you can get back from an 87A rebate is either Rs. 12,500, which is the limit set by section 87A, or the total amount of tax you owe before cess, whichever is less. Therefore, if your total tax liability after all deductions and exemptions is Rs. 7,000, you will be eligible for a rebate of Rs. 7,000 only, not Rs. 12,500.

5.    Applicability of Rebate

Both the current and forthcoming income tax systems will be compatible with the Section 87A rebate. Hence, the Section 87A refund is available for both 2019-20 and 2020-21 fiscal years.

Example of Calculation of Rebate under Section 87A for an Individual below 60 years of age

Take a look at the following example to see how Section 87A can be used to figure out a refund for a standard taxpayer in India for the current fiscal year (2019-20).

Rebate u/s 87A for Previous Financial Years

The government announced Section 87A for the financial year 2013–14. The maximum amount of rebate allowed under this section has been amended as follows:

How is Income Tax Rebate Calculated?

Taxpayers need to do the following to get a rebate under Section 87A for financial years that have already passed:

1.    First, calculate the gross income by adding up income from all sources such as salary, house rent, capital gains, and income from other sources.
2.    After calculating the gross income, apply deductions under Section 80 to arrive at the net taxable income. Deductions like Section 80C, Section 80D, and Section 80G can be claimed depending upon the nature of expenses incurred.
3.    Once the net taxable income is calculated, check if the income is equal to or less than the maximum limit allowed for the respective financial year. If the net taxable income is less than or equal to the maximum limit, the taxpayer is eligible to claim rebate under Section 87A.
 

Three Things to Consider about Section 87A

There are three things to consider before claiming a tax rebate under the Section 87A.  

●    First of all, the rebate is only for people who live in India. Non-resident Indians (NRIs) can't use it. 
●    Secondly, it is not applicable to corporations, firms, or HUFs. 
●    Lastly, while senior citizens (aged 60 to 80) can avail themselves of this tax rebate, super senior citizens (aged 80 and above) are not eligible for the rebate. These factors must be considered before claiming the rebate under Section 87A.