The Government of a country levies tax from every citizen to fund its various activities. Higher the income higher will be their share of tax. Under section 87A of Income Tax Act, 1961 provides a rebate where people are not burdened by the taxation so that the people can meet the ends with their limited Financials.
What is Section 87A of Income Tax Act
The Rebate under Section 87A of Income Tax Act helps taxpayers reduce their Income tax liability. Citizens whose annual income does not exceed 5 Lakhs can claim Rebate of 12,500 which means that they are entirely exempted from the tax liability towards the government and tax can be saved.
Is 87A applicable in the old Tax Regime?
Irrespective of the Tax regime the Rebate under section 87A is applicable for the citizen whose annual income doesn’t exceed 5 Lakhs after the net of deductions and exemption. Special allowance in salary can’t be exempted under section 87A. This page has more information on special allowances and how it works.
Eligible Amount of Rebate u/s 87A
The Tax Rebate is limited to 12,500 which means if your total tax payable is less than, or 12,500 then you don’t have to pay any tax;the rebate will be applied to total tax before adding health and education cess of 4%.
Things to Remember when claiming Rebate u/s 87A
- Rebates under Section 87A can be claimed irrespective of the Regime.
- Taxpayers above the age of 80 (senior citizens ) can’t avail rebate.
- Taxpayers aged below 60 and between the age group of 60 and 80 years can avail Rebate.
- Taxpayers who are residents of India can only avail the rebate.
- The Rebate is available on the tax liability before calculating the health and education cess.
- The Rebate is available only if the annual income is upto 5 Lakhs and the citizens whose income exceeding 5 Lakhs are not eligible for Rebate.
- If your tax liability is below the rebate amount then the tax liability will be considered equal to the rebate amount.
How is Section 87A Rebate Calculated?
- Categorise your total income into respective heads.
- Make an aggregate of the total Income which you have earned from various sources.
- Deduct the eligible deductions and exemptions from the aggregate income to find net taxable income
- Calculate the tax liability on the net taxable income if it exceeds the threshold of 2.5 lakhs
- If your net taxable income is 5 Lakhs or below claim the rebate on the tax liability or 12,500 rupees whichever is lower.
The below chart shows the tax liability of citizens under different age groups and income.
The Rebate under section 87A is certainly the efficient way of saving taxable income in India and has helped a lot of citizens who have limited annual income to meet their ends without bothering the tax liability. This is a great initiative by the government for their citizens when used in the right manner.