The taxes paid by the citizens of India are utilized for the purpose of improving of the country’s economy. The Income Tax Department has created different tax slab rates for individuals with a different set of income. In order to make sure that the people with low taxable income do not get burdened with paying more taxes, the government has also set up provisions like claiming income tax rebate u/s 87A to reduce the tax liability of these people.
What is Income Tax Rebate Under Section 87A?
Under Section 87A of the Income Tax Act, 1961, resident individuals whose net taxable income is less or equal to INR 5,00,000 will be able to claim a tax rebate of a maximum of INR 12,500 or the amount of tax payable, whichever is lower.
What are the Eligibility Criteria to Claim a Rebate u/s 87A?
Individuals can claim rebate u/s 87A if they fall under the following criteras:
- One has to be a residential individual
- The total taxable income after deductions must not be more than INR 5,00,000
- Senior citizens (aboe 60 years and below 80 years) can avail a rebate
- Super senior citizens i.e. more than 80 years old are not eligible to claim a rebate u/s 87A
- Rebate under 87A is available under both the tax regime i.e. old as well as new
How to calculate Tax Rebate u/s 87A?
Following are the steps to calculate the tax rebate amount:
- Add all your incomes
To calculate the rebate amount one needs to add their incomes from all sources to arrive at Gross Total Income
- Claim Chapter VIA Deductions
Now reduce the tax liability by claiming all the applicable chapter VIA deductions
- Arrive at Net Taxable Income
Arrive at your net taxable income after claiming the tax deductions
- Net Taxable Salary is less than or equal to INR 5 lacs
After applying all applicable deductions if your net taxable salary is less than or equal to INR 5,00,000 than you are eligible to claim a rebate under section 87A
Let us take an example to understand the calculations better:
Mr Kumar, age 45 is a salaried residential individual.
|Particulars for FY 20-21||Income|
|Gross Total Income||6,00,000|
|Net Taxable Income:||450,000|
|Tax Payable before cess(5% INR 2.5 to INR 5 lakh)||10,000|
|Tax Rebate u/s 87A (INR 12,500 or tax payable whichever is lower)||10,000|
No, only resident individuals can claim a rebate under this section. Companies and HUF cannot avail this benefit.
No, individuals are entitled to claim tax rebate u/s 87A of INR 12,500 or 100% of tax liability amount whichever is lower