Section 87A: Tax Rebate for Low and Middle-Income Earners in India

Section 87A: Tax Rebate for Low and Middle-Income Earners in India

Section 87A of the Income Tax Act, 1961, offers a welcome tax break for individual taxpayers in India. This guide simplifies everything you need to know about claiming this rebate.

What is the Section 87A Rebate?

The government provides tax relief to low—and middle-income earners through Section 87A. It allows eligible individuals to claim a rebate on their income tax liability, reducing the amount of tax they ultimately have to pay.

Who is Eligible for the Rebate?

To claim the rebate under Section 87A, you must meet the following criteria:

•     Resident of India: You must be a resident taxpayer in India as defined by the Income Tax Act.

Income Threshold: Your total income after deductions must be within a specified limit, including investments and medical expenses under Chapter VIA. This limit varies depending on the financial year (FY).

Recent Changes to the Rebate Limit

The rebate limit under Section 87A has been revised over the years. Here's a quick breakdown for the latest FYs:

•      FY 2022-23 (AY 2023-24): The maximum rebate is Rs. 12,500. Your total income after deductions cannot exceed Rs. 5 lakhs.
•      FY 2023-24 (AY 2024-25): The rebate limit remains Rs. 12,500 for the old tax regime. Under the new tax rules, the limit is now Rs. 25,000 for those earning Rs. 7 lakhs or more.

Understanding the Rebate Mechanism

·      The rebate applies to the tax amount you owe before adding the health and education cess.

The rebate amount will be the lower of the maximum limit set for the year or the total tax payable.

How to Claim the Rebate

•   Calculate your gross total income for the financial year.
•   Deduct all eligible tax-saving investments and expenses under Chapter VIA.
•   Arrive at your net taxable income after deductions.
•   File your Income Tax Return (ITR) and declare your gross income and deductions.
•   If your income falls within the specified limit, claim the rebate under Section 87A while filing your ITR.
  
  Important Considerations
•       The rebate under Section 87A is available to both senior citizens (below 80 years) and younger individuals.
•       Older Senior citizens (above 80 years) are not eligible for this rebate.
•       This rebate provision applies to both the old and new tax regimes, with different qualifying income limits.

Benefits of Section 87A

• Section 87A encourages people to file taxes and reduces taxes for those with low to medium incomes by providing rebates. It puts more money back into their pockets, potentially boosting consumption and economic activity.

Section 87A can help you save on your income tax if you fall under the eligible income bracket. To get a tax rebate, meet the requirements and claim it when filing your taxes. This can help you save money.