Section 87A provides tax exemption to individual taxpayers whose taxable income falls under a specified limit. Under a new tax regime for the financial year 2023-24, residents earning up to ₹7 lakh under the current regime or ₹5 lakh under the old regime can avail rebate, which will make their tax liability zero or very low.
What is Section 87a?
Section 87A of the Income Tax Act 1961 provides tax exemption to taxpayers in India. This section was introduced to reduce the tax burden on individuals with lower incomes. The details of Section 87A are as follows.
What is Section 87a of Income Tax Act?
Section 87A of Income Tax Act 1961 provides exemption on income tax to individual taxpayers.It was introduced to provide relief to people with low income level.
Resident Individuals: This exemption is only for resident individuals and non-residents are not eligible.
Income limit: The exemption is applicable if the total income after deductions does not exceed the specified limit.
What is Income Tax Rule 87a?
Income Tax Rule 87A is line with Section 87A of the Income Tax Act, 1961 which provides income tax exemption to eligible taxpayers. This rule is important to ensure that the burden of income tax does not fall on individuals falling within the specified income group, which is in line with the government’s objective of providing tax relief to the lower income groups.
Tax Relief Under Section 87a?
Tax relief under section 87a by minimizing your tax liability. For the financial year 2023-24 assessment year 2024-25 Under the new tax regime, individuals with total income up to Rs 7 lakh can claim a rebate of up to Rs 25,000.Under the old tax regime, people with total income up to Rs 5 lakh could claim exemption of up to Rs 12,500.This exemption can reduce the tax liability to zero, providing significant relief to middle and low-income taxpayers.
What are the Section 87a Benefits?
1. Tax relief Eliminates or eliminates tax liability for residents with working income.
2. Rebate Amount
New tax regime Up to Rs 25,000 for income up to Rs 7 lakh
The old tax system has up to Rs 12,500 for an income of Rs 5 lakh.
3. Simplifies tax compliance: Lowers the tax burden for eligible taxpayers.
4. Encouraging return filing Encourages individuals to file tax returns even if they owe minimal or no tax.
5. Financial Savings: Facilitates eligible taxpayers to save more by reducing tax outlay.
What are the Advantages of Section 87A
1. Tax Relief for Low Income Provides substantial tax relief to individuals with low taxable income, reducing their tax liability potentially to zero.
2. Higher Savings This helps taxpayers retain more of their income by reducing the amount of tax they have to pay.
3. Encourages compliance It motivates people to file their income tax returns even if they have little or no tax due thereby promoting more comprehensive tax compliance.
4. Help middle-income groups. The middle and lower-income groups mainly receive benefits, financial relief, and a more equitable tax system.
5. Financial Savings: By facilitating eligible taxpayers to save more through reduced tax outlay, the tax relief program provides a sense of financial security and confidence about their future.
6. Applicable across different tax regimes: This exemption is available under both the old and new tax regimes, giving taxpayers the flexibility to choose the regime that best suits their financial situation and empowering them to make informed financial decisions.
What is Tax Rebate?
Tax exemption is a reduction in the amount of tax you pay. This directly reduces your tax bill based on specific criteria or conditions, such as income level or qualifying investments. For example, if you owe a tax of ₹50,000 and are eligible for a rebate of ₹10,000, you will only need to pay ₹40,000. The exemption provides financial relief and encourages compliance with tax regulations.
What is Tax Rebate Under Section 87A?
1. Objective To reduce or eliminate the tax liability for low income individuals.
2. Eligibility Available to resident individuals (including senior citizens) only.
3. Application Application is made after the total tax payable has been calculated.
4. Effect If the amount of exemption exceeds the tax payable, the tax liability can be nullified.
5. Encourages compliance Encourages individuals to file their tax returns even if they owe minimal or no tax.
6. Income limit: Exemptions are based on the specific income limit for each tax regime.
7 No additional documentation: Typically claiming this exemption does not require additional documentation beyond standard tax filing.
8. Applicability across various tax regimes Available under both old and new tax regimes, provides flexibility in tax planning.
9. Simple calculation: Calculating and applying discounts is simple making it user-friendly.
10. Exemption limit The exemption amount cannot exceed the actual tax liability Its extent is limited to the maximum allowable discount.
What are Tax Rebate 87a Benefits?
1 Reduces Tax Liability Directly reduces the amount of tax you pay, possibly reducing your tax liability to zero.
2 Tangible Financial Relief: Tax exemptions offer significant tax savings to low-income individuals, allowing them to keep more of their hard-earned income.
3 Encouraging tax filing Encouraging individuals to file their tax returns even if their tax liability is minimal.
4 Help to low-income groups: It aims to provide financial relief to middle- and low-income groups, thereby making the tax system more fair.
5 Simplified Process: Exemptions are straightforward to calculate and claim, streamlining the tax filing process.
6 Applicable across all tax regimes: Available under both old and new tax regimes, offering flexibility to taxpayers.
7 No additional documentation: There’s typically no extra paperwork required beyond standard tax filing.
8 Promotes compliance: It helps ensure compliance with tax laws by more individuals by reducing the financial burden.
What is Deduction Under 87a?
The deduction under 87a If taxable income is less than or equal to Rs 5 lakh. This deduction is applicable to individuals who fall under the tax slab and are not claiming deduction under sections 80C, 80D, etc., thereby reducing their taxable income to less than Rs 5 lakh.
Eligibility: Individual taxpayers with taxable income up to Rs 5 lakh (except senior citizens).
Exemption amount: Up to Rs 12,500 or the actual amount of tax payable, whichever is less.
Purpose: To provide relief to low-income taxpayers by reducing their tax burden.
What is 87a Rebate in New Tax Regime?
In the new tax regime introduced in India, Section 87A exemption has been revised for the financial year 2024. The main points are as
1 Exemption Eligibility Available to individual taxpayers choosing the new tax regime.
2 Income limit Exemption under section 87A can be availed on taxable income up to Rs 7 lakh.
3 Exemption amount The exemption is up to ₹25,000 or the actual amount of tax payable, whichever is lower.
4 Tax Structure: The new tax regime offers lower tax rates than the old tax regime, but has fewer deductions and exemptions.
5 Applicability: Taxpayers will have to select the new tax regime while filing their tax returns; it Cannot be switched between different arrangements in the same financial year.
6 Purpose: The primary aim of this exemption is to provide much-needed relief to low-income taxpayers under the new tax regime.
How is Section 87a Rebate Calculated?
The exemption under section 87A is calculated based on the taxable income of the individual. The calculation is done as follows:
1. Determine the taxable income
Calculate total taxable income after considering all income sources, such as salary, business, and applicable deductions.
To avail exemption under Section 87A, taxable income under the new tax regime should not exceed ₹7 lakh ₹5 lakh under the old tax regime.
2. Calculate the tax liability
Calculate tax liability based on tax rates applicable to your income slab.
For example, if your taxable income under the new tax regime is ₹6 lakh, the tax liability will be calculated as per the slab rates.
3. Apply for exemption under section 87A
If your taxable income under the new tax regime is up to ₹7 lakh, you are eligible for a rebate under Section 87A.
The maximum exemption that will be given is ₹25,000 or the actual tax payable, whichever is lower.
4. Final Tax Due
Subtract the exemption amount from your total tax liability to determine the final tax owed.
If the tax liability is fully covered by the exemption, the final tax payable will be zero Income and Tax Calculator.
Example
| Taxable Income | Tax Liability (as per slab) | Exemption under Section 87A | Final Tax Payable |
|---|---|---|---|
| ₹6.5 lakh | ₹25,000 | ₹25,000 (maximum limit) | ₹25,000 – ₹25,000 = ₹0 |
Rebate Under Section 87a for ay 2024-25?
For the assessment year 2024-25, resident individuals are eligible for exemption under section 87A. In the new tax regime, if your taxable income is up to ₹7 lakh, you can claim an exemption of up to ₹25,000. In the old tax regime, exemptions were applicable if your taxable income was up to ₹5 lakh, with the maximum exemption being ₹12,500. This exemption reduces your tax liability, and if the exemption amount covers the entire tax, you will not have to pay any tax.
| Eligibility | Income Range | Rebate Amount | Result |
|---|---|---|---|
| Resident individuals | New Tax Regime: Taxable income up to ₹7 lakh Old Tax Regime: Taxable income up to ₹5 lakh | New Tax Regime: Up to ₹25,000 Old Tax Regime: Up to ₹12,500 | If eligible, the rebate reduces the tax you owe, possibly to zero. |
Who is Eligible for 87a Rebate?
The person must be a resident of India to be eligible for Section 87A exemption. Under the new tax regime, exemptions will be applicable if the taxable income is up to ₹7 lakh, with the maximum exemption being ₹25,000. Under the old tax regime, exemptions were available on taxable income up to Rs 5 lakh, with the maximum exemption being Rs 12,500. This exemption reduces the tax payable, and if it completely balances the tax liability, it can bring the tax down to zero.
How to Claim Tax Rebate under Section 87A?
Follow these steps to claim tax exemption under section 87A
Step 1: Determine eligibility Make sure you meet the exemption criteria based on your taxable income and residency status.
Step 2: Calculate Taxable Income Calculate your total taxable income and tax liability as per the applicable tax regime.
Step 3: Complete tax return File your income tax return using the appropriate form ITR-1 or ITR-2 for the relevant financial year.
Step 4: Apply exemptions. During the process of filing tax returns, if your taxable income is within the eligible limit, exemptions under section 87A will be automatically applied.
Step 5: Submit Returns Submit your complete tax return either online or offline. The exemption will reflect in the final tax calculation, reducing your tax liability and also Contact our Expert Legal Adviser.
What are the Eligibility Criteria to Claim Tax Rebate Under Section 87a?
You can claim tax exemption under section 87A of the Income Tax Act if you fulfill the following conditions
- The taxpayer should be a resident of India.
- Your total income after reducing deductions under Chapter VI-A (Section 80C, 80D, etc.) should not exceed ₹5 lakh as per the old tax regime.
- The tax exemption is limited to ₹12,500 under the old tax regime and ₹25,000 as per the new tax regime for FY 2024-25 (FY 2025-26).
- If your total tax payable is below these limits, you will not have to pay any tax.
- Senior citizens (aged 60 to 80 years) are eligible to claim the discount.
- Very senior citizens (above 80 years of age) are not eligible to claim the exemption.
What are the Things to Remember Before Availing Rebate Under Section 87A?
Keep the following points in mind before availing exemption under section 87A:
1 Residential status Make sure you are a resident individual for tax purposes.
2 Income Limit Verify that your taxable income does not exceed ₹7 Lakh new tax regime or ₹5 Lakh old tax regime.
3 Choose a tax regime Decide whether to choose the new or old tax regime, as exemption limits and availability vary.
4 Calculate tax liability Accurately calculate your tax liability to determine the exemption amount you are eligible for.
5 Exemption limit Keep in mind that the exemption amount is limited ₹25,000 in the new regime ₹12,500 in the old regime and is applicable only if it covers the tax payable.
6 File correctly Make sure you file your tax returns correctly as exemptions will be automatically applied based on the details provided.
7 Documentation Keep all the necessary documents and calculations ready in case of any verification or audit by tax authorities for the help Contact Our Expert Legal Adviser.
Rebate Limit Under Section 87A for All the Financial Years?
| Financial Year | Limit on Total Taxable Income | Amount of Rebate Allowed u/s 87A |
|---|---|---|
| 2023-24 | ₹7,00,000 (New Tax Regime) | ₹25,000 |
| 2023-24 | ₹5,00,000 (Old Tax Regime) | ₹12,500 |
| 2022-23 | ₹5,00,000 | ₹12,500 |
| 2021-22 | ₹5,00,000 | ₹12,500 |
| 2020-21 | ₹5,00,000 | ₹12,500 |
| 2019-20 | ₹5,00,000 | ₹12,500 |
| 2018-19 | ₹3,50,000 | ₹2,500 |
| 2017-18 | ₹3,50,000 | ₹2,500 |
| 2016-17 | ₹5,00,000 | ₹5,000 |
| 2015-16 | ₹5,00,000 | ₹2,000 |
| 2014-15 | ₹5,00,000 | ₹2,000 |
| 2013-14 | ₹5,00,000 | ₹2,000 |
Section 87a for Senior Citizens?
Section 87A of the Income Tax Act, 1961 does not make any clear distinction between senior citizens and non-senior citizens for exemption. The exemption under section 87A applies equally to all individual taxpayers who are resident in India.
Critical points for senior citizens
1 Eligible
Senior citizens aged 60 years and above are eligible for exemption under Section 87A if their taxable income falls within the prescribed limit.
2 Exemption Limits
Financial Year 2023-24 Assessment Year 2024-25
New tax regime Taxable income up to ₹7 lakh, with exemption up to ₹25,000.
Old tax system Taxable income up to ₹5 lakh, with exemption up to ₹12,500.
In previous years, the limits and exemption amounts for senior citizens have been the same as for other individuals, although the specific exemption amounts and limits have varied over the years.
2 Choice of tax regime
Senior citizens can choose between the new and old tax regimes. The exemption eligibility and limits apply depending on the regime chosen and the income level.
3 Discount calculation
This exemption is applied to reduce the tax liability and if it covers the entire tax payable it effectively reduces the tax to zero.
What if Rebate Under Section 87a is not Available in Respect of Tax Payable?
If an exemption under section 87A is not available in respect of tax payable, the same may be due to the following reasons:
1 Income exceeds limit Taxable income exceeds the limit eligible for exemption ₹7 lakh for the new tax regime or ₹5 lakh for the old tax regime.
2 Not resident The person is not a resident of India as section 87A is available only to resident individuals.
3 Wrong tax regime Exemptions are applicable based on the tax regime selected. Make sure the correct regime is selected and applied correctly in the tax return.
4 Calculation of taxable income: Make sure that taxable income is calculated correctly and that all eligible deductions and exemptions are appropriately accounted for.
5 Exemptions have already been applied. The exemption against tax liability has already been fully utilized, and no additional exemption can be claimed.
6 Filing errors Tax returns may contain errors or omissions that can affect the calculation of exemptions.
What are the Differences Between Income Tax Rebate and Income Tax Deductions?
| Aspect | Income Tax Rebate | Income Tax Deductions |
|---|---|---|
| Definition | A reduction in the total tax payable, applied directly to the tax amount after computing the tax liability. | Reduces your total taxable income before calculating tax liability. Does not reduce the tax payable directly. |
| Application | Reduces the tax payable, and if the rebate amount exceeds the tax liability, it can reduce the tax payable to zero, subject to limits. | Deducted from gross income to determine net taxable income, which is taxed based on applicable slabs. |
| Eligibility | Based on specific criteria or income limits, such as Section 87A, which provides a rebate up to a certain amount based on income levels. | Available under various sections like 80C, 80D, and often based on specific expenditures, investments, or other criteria. |
| Example | Under Section 87A, if your tax liability is ₹15,000 and you are eligible for a rebate of ₹12,500, your final tax payable will be ₹2,500. | If you invest ₹1.5 lakh in eligible instruments under Section 80C, this amount is deducted from your gross income. If your gross income is ₹6 lakh, your taxable income will be ₹4.5 lakh, and you will be taxed based on this reduced amount. |
Conclusion
Section 87A of the Income Tax Act of 1961 provides a valuable tax exemption mechanism designed to provide relief to individual taxpayers by reducing their tax liability based on their level of income. For the financial year 2023-24 and assessment year 2024-25, section 87A allows the following.
The rebate is applied directly to the tax payable, potentially being nullified if the rebate amount exceeds the tax liability. Eligibility for this exemption is based on residence status and taxable income, and specific income limits vary between the new and old tax regimes.
FAQs
1. What is Section 87A of the Income Tax Act?
Answer. Section 87A provides an exemption to individual taxpayers on their tax liability based on their taxable income. Its purpose is to provide relief to low-income taxpayers by reducing the amount of tax payable.
2. Who is eligible for the rebate under Section 87A?
Answer. Resident individuals are eligible for exemption. For the financial year 2023-24, the income limit for eligibility is up to ₹7 lakh under the new tax regime and ₹5 lakh under the old tax regime.
3. How much rebate can be claimed under Section 87A for the financial year 2023-24?
Answer. The exemption under the new tax regime can be up to Rs 25,000. Under the old tax system, it could be up to Rs 12,500.
4. How is the rebate under Section 87A applied?
Answer. The exemption is directly applicable to the tax payable. After the total tax liability is calculated, the exemption amount is subtracted to determine the final tax payable. If the exemption covers the entire tax liability, the final tax payable may be zero.
5. Is the rebate under Section 87A available to senior citizens?
Answer. Yes, senior citizens are eligible for exemption under Section 87A like other persons, if their taxable income falls within the specified limits.
6. Can deduction under section 87A be claimed in addition to other deductions?
Answer. Yes, exemption under section 87A is claimed after computing tax liability based on taxable income which may include deductions under other sections. The exemption is applicable on the final tax payable after considering all deductions.
7. How do I claim the rebate under Section 87A?
Answer. Claim the exemption by filing your income tax return using the appropriate form (ITR-1 or ITR-2). The exemption will be automatically applied based on the details provided in the return if you fulfill the eligibility criteria.
8. What happens if my taxable income exceeds the limit for the rebate under Section 87A?
Answer. If your taxable income exceeds the limit specified for exemption, you will not be eligible to claim the exemption. Without the benefit of this exemption you will be taxed as per the income tax slab applicable to you.
9. Is Section 87A applicable for all financial years?
Answer. Section 87A applies to every financial year, but the limits and exemption amounts may change based on annual budget announcements. Always check the current year’s provisions for accurate information.
10. What should I do if the rebate under Section 87A is not reflecting in my tax return?
Answer. Make sure you meet all the eligibility criteria, and your income is within the exemption limit. Check your tax return for accuracy and make sure exemptions have been applied correctly. If the problem persists, consult a tax professional or contact the Income Tax Department for assistance.
Add a Comment