What is Tax Rebate Under Section 87A?

The Income Tax Act Act was enacted in the year 1961 in India. It is the charging statute that provides for administration, levy, recovery, and collection of income tax in the country. The government amends, adds, and removes provisions regularly, to simplify taxation and boost tax revenue.The IT Act also provides several provisions to help taxpayers reduce their tax liabilities. The tax rebate under Section 87A is one such provision. Here’s everything you should know about what this provision is and who is eligible for it-

A tax rebate is a type of tax refund that a taxpayer is eligible to receive from the IT department when the tax paid or payable is higher than the actual tax liability . So, under Section 87A, individuals with a taxable income of Rs. 5 lakhs or less are eligible for a tax rebate of up to Rs. 12,500.If your taxable income is up to Rs. 5 lakhs, you can claim a tax rebate under Section 87A, after which your tax liability would be nil. The rebate is available for all the resident Indians, including senior citizens.

As mentioned above, a tax rebate applies to the tax amount already paid or payable by a taxpayer. On the other hand, tax exemptions are claimed from specific sources of eligible income. For instance, HRA from Gross Total Income is not eligible for tax exemption, but the salary is eligible.If you’ve made specific investments or expenditures from your income that are eligible under various IT sections, you can claim deductions on them. Deductions can be claimed on the Gross Total Income and also under each Head.In simple words, a rebate is claimed on the tax amount, while exemptions and deductions are claimed on the income.

The new Finance Bill of 2020 has introduced an optional reduced rate income tax for taxpayers falling under the 15% and 25% slab rates. The optional lower rate tax was already available for people falling under the 10%, 20%, and 30% slabs since the introduction of Finance Bill 2019.Can taxpayers claim a tax rebate under Section 87A under the new tax regime? Yes, the Finance Bill 2020 has made no changes to the Section 87A rebate, and eligible taxpayers can claim a rebate of up to Rs. 12,500 if their taxable income in the financial year is up to Rs. 5 lakhs.

Here are the steps you can follow for claiming a tax rebate under Section 87A-

• Calculate the Gross Total Income for the financial year
• Adjust the Gross Total Income for deductions available in eligible investments, expenses, etc.
• File ITR declaring the Gross Total Income and eligible deductions
• If the total income after deductions is not more than Rs. 5 lakhs, you can claim a tax rebate of up to Rs. 12,500 under Section 87A

Here are some of the most important things one should remember before claiming a rebate under Section 87A -

• Tax rebate under 87A is only available for individual Indian residents. NRIs, companies, or firms are not allowed to claim this rebate.
• Senior citizens between 60 to 80 years are eligible for the 87A rebate, but super seniors who are 80 years and above are not eligible.
• SHEC and education cess are levied on the payable tax amount after adjusting for the tax rebate of up to Rs. 12,500 under 87A for eligible taxpayers.
• As per Section 112A, rebate under 87A is not available on Long Term Capital Gains from equity or other investments specified in the provision.

The tax rebate available under Section 87A is one of the several provisions available for taxpayers to reduce their tax liabilities. Several other provisions such as 80C , 80D , 80CCD, 80GG, and more can help salaried and self-employed professionals significantly reduce their tax liabilities.As taxes can be complex for someone who has recently started earning, the assistance of a tax professional should be considered to take maximum advantage of all the deductions, exemptions, and rebates a taxpayer is eligible for.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.