Tax Relief Simplified: How Section 87A Can Benefit You
Section 87A of the Income Tax Act provides tax rebates to individuals whose income does not exceed a certain limit. This reduction in taxes helps ensure low or nonpayment of taxes by those within this tax bracket. It is a big benefit designed to offer tax relief based on income earned.
Rebate For Financial Year (FY) 2024-25 And Assessment Year (AY) 2025-26?
Under the New Tax Regime announced in Union Budget 2024, if a taxpayer’s annual earnings are not more than INR Seven Lakh, they can claim back some of their taxes as per Section 87A of the Income Tax Act, 1961. In simple terms, any Indian resident whose income is below INR 7,00,000 can get a rebate of either INR 25,000 or the amount of tax to be paid by them, whichever is lower.
On the other hand, under the Old Tax Regime, this figure was set at INR Five Lakhs and had a rebate ceiling of INR 12,500. These changes follow policy shifts that were implemented to offer more tax relief to low-income earners.
Example Of Rebate Under Section 87A
Take a look at a hypothetical example of the rebate to understand the topic better:
Under the New Tax Regime | Under the Old Tax Regime | |
| Total Taxable Income | 7,00,000 | 5,00,000 |
| Tax Rate | 5% | 5% |
| Tax Liability Before Rebate | 35,000 | 25,000 |
| Tax rebate under Section 87A | 25,000 | 12,500 |
| Tax Liability After Rebate | 10,000 | 12,500 |
| Education Cess (4% on tax liability) | 400 | 500 |
| Total Tax Liability After Rebate and Cess | 10,400 | 13,000 |
What Are The Steps To Claim Rebate Under Section 87A Rebate In ITR Filing?
Take the following actions to claim the rebate under Income Tax Section 87A:
- Determine the gross total income you earned in the preceding fiscal year.
- All claimed tax deductions for investments that save taxes are to be subtracted now.
- This adjusted income is your taxable income.
- Estimate your gross tax liability (before adding cess).
- To your gross tax liability, apply the 87A rebate. However, the rebate will only be applied, subject to the eligibility criteria and within the limits mentioned.
Find more about the Income Tax Filing: How to File ITR Online for FY 2023-24 (AY 2024-25)
What Are The Eligibility Criteria To Claim Income Tax Rebate Under Section 87A For FY 2024-25 (AY 2025-26)?
- This allowance only applies to residents; non-residential Indians (NRIs), Hindu Undivided Families (HUFs) or firms are not covered by this provision.
- The earnings for a taxpayer should not exceed seven hundred thousand rupees within twelve months in case of the new tax regime and it should not exceed five hundred thousand rupees in case of the old tax regime.
- Under the old tax regime, super senior citizens (those who are 80 years of age or older) are not eligible (since their basic threshold limit is INR 5,00,000).
While claiming a rebate under Section 87A can reduce your tax liability, smart investments can further optimize your savings.
Illustration Of Tax Rebate Under Section 87A For FY 2024-25 (AY 2025-26)
Let us consider a number of scenarios: (assuming the taxpayer is an individual who is less than 60 years of age)
Old Tax Regime | New Tax Regime | |||||
Taxable Income | Tax Liability | Rebate Under Section 87A | Tax Liability After The Rebate | Tax Liability | Rebate Under Section 87A | Tax Liability After The Rebate |
| INR 5,00,000 | INR 12,500 | INR 12,500 | NIL | INR 10,000 | INR 25,000 | NIL |
| INR 7,00,000 | INR 52,500 | Not applicable | INR 52,500 | INR 20,000 | INR 25,000 | NIL |
| INR 10,00,000 | INR 1,12,500 | Not applicable | INR 1,12,500 | INR 50,000 | Not applicable | INR 50,000 |
For simplicity purposes, the calculations do not take into account any deductions claimable under each of the tax regimes.
What Are The Things To Remember Before Availing Rebate Under Section 87A?
Here are some things to keep in mind before applying for a rebate u/s 87A:
- Apply the rebate prior to applying for the health and education cess (4%).
You can claim the Section 87A rebate against the tax you owe on different types of income:
- Normal Income: This includes your salary, business income, rental income, etc., which are taxed according to the income tax slab rates.
- Long-Term Capital Gains (Section 112): This is the profit you make from selling assets you've held for a long time. These assets can be anything except listed equity shares (stocks) and equity mutual funds. The tax on these long-term capital gains can be reduced by the Section 87A rebate.
- Short-Term Capital Gains on Listed Equity Shares and Equity-Oriented Mutual Funds (Section 111A): This is the money you make when you sell stocks or mutual funds that you haven't owned for very long. The 15% flat tax on these gains can be lowered by utilising the Section 87A rebate.
Bottomline
Section 87A of the Income Tax Act is important for most taxpayers: it gives resident individuals with low taxable income a lot of tax relief. This rebate can, thus, greatly reduce the tax liabilities for individuals earning up to INR 7,00,000 and even eliminate them.
Taxpayers must understand the eligibility criteria for the rebate under both existing and new tax regimes to make informed decisions maximising their savings.
Utilising benefits from Section 87A could be instrumental in enhancing personal financial plans and ensuring a better future for investors.
To learn more about investment and financial planning, stay tuned to Grip Invest.
Frequently Asked Questions On Section 87A
1. What happens if the income tax refund is above 50000?
The Income Tax Department may scrutinise any tax refund over INR 50,000 more strictly to authenticate and confirm the claimant’s claim. That means that return details could be verified and supporting documents for the claim are necessary.
2. What is the exemption limit for ITR?
For the assessment year 2024-25 i.e., the financial year 2023-24, here is an exemption limit for filing of ITR:
- Individuals Below 60 Years: INR 2,50,000
- Senior Citizens (60 to 80 Years): INR 3,00,000
- Super Senior Citizens (Above 80 Years): INR 5,00,000
These limits represent the maximum income below which individuals are not required to file an ITR. But once the amount surpasses these limits they must file for it.
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