Section 87A: Rebate for Resident Individuals in New Tax Regime
The Indian Income Tax Act of 1961 offers deductions and rebates. Section 87A is one of the most valuable sections of that Act. Section 87A provides a rebate to be given to the resident individual whose total income does not exceed a particular amount. It has been found effective in ironing out the tax system for low and middle-income earner people. This article is focused on income tax rebate under section 87A involving the eligibility criteria for the computation of this allowance and its overall effect on the average taxpayer.
What is Section 87A?
To give relief on income tax, for individuals below certain income limits, section 87A of the Income Tax Act, 1961 has been inserted. This goes directly to deducting a part of a payable amount of income tax by a person; thus, the eligible person’s savings will enhance financial inclusion.
Section 87A rebate will not be taken as a subtraction from income as is the case with the normal deductions, but rather the amount to be subtracted from the taxes payable. The rebate however is available only to individual taxpayers meeting certain conditions.
Eligibility to Claim Rebate Under Section 87A
The following conditions shall be met for the purposes of rebate under Section 87A-
- Resident Individual: A person should be an inhabitant of India with actual and continuous residence therein. Avail rebate is not available for NRIs and HUFs.
- Taxable Income Limit: Earnings per tax year of the person should not exceed the limit as prescribed by the law. However, up to the financial year 2023-24, this limit has been prescribed at a new tax regime of ₹12L.
- Nature of Income: The rebate is also payable irrespective of the type of income earned whether it is wage or business income or any other income within the limit of the total tax income.
- Age of Taxpayer: The rebate is extended to anyone irrespective of age including seniors, super seniors and everyone in between.
Difference Between Old and New Tax Regime: Section 87A
To explain better, let us take two cases:
- Income under New Tax Regime
- Gross Total Income: ₹12L
- Deductions: Not available under the new regime except salaried persons with income ₹12.75L
- Taxable Income: ₹12L
- Tax Payable (under slab rates): ₹60K
- Rebate under Section 87A: ₹60K
- Final Tax Payable: ₹0
- Income under Old Tax Regime
- Gross Total Income: ₹4,90,000
- Deductions: ₹40,000 (example: under section 80C)
- Taxable Income: ₹4,50,000
- Tax Payable (under slab rates): ₹12,500
- Rebate under Section 87A: ₹12,500
- Final Tax Payable: ₹0
Earlier the income tax rebate under section 87A on income of ₹5,00,000 was ₹12,500 only. In the new mode of taxation, this rebate now is ₹60,000 on income up to ₹12L, a further relief to the tax payers.
Advantages of Section 87A
- Not a Refund: The rebate is not returned to the taxpayer when the tax payable is zero.
- Claim Automatically Adjusted: The rebate under Section 87A gets automatically adjusted by the ITR software and system of the department, while it is applicable.
- It gives instant relief to low earners in terms of stable finance.
- It encourages taxpayers to submit their tax return so that they can make the most of this benefit and, therefore, boosts overall compliance.
- It increases disposable income as the liability of tax is reduced. This enables people to spend and save more.
Get Started with TaxDunia
Section 87A is one of the key instruments in Indian taxation policy meant to protect low-income taxpayers. Its structure fits into the stated purposes of equity and fairness in taxation. With the raising of higher thresholds under the new tax regime, even more will stand to be benefited by that, making taxation more representative. Taxpayers first need to know what determines their eligibility and then choose between the old and new regimes in accordance with their financial profile to receive maximum benefits under Section 87A. Reach out to TaxDunia to claim deductions under various sections available under the Income Tax Act 1961.
