Section 87A of the Income Tax Act, 1961 provides tax relief to individual taxpayers whose taxable income falls below a certain threshold. The provision was introduced in the Finance Act, 2013 and has been revised over the years to provide additional relief to taxpayers.
In this blog, we will discuss the key provisions of Section 87A of the Income Tax Act and how it impact individual taxpayers.
Who is eligible for tax relief under Section 87A?
The tax relief under Section 87A is available to resident individuals whose taxable income does not exceed Rs. 5,00,000. The term “resident” refers to an individual who has stayed in India for a minimum of 182 days in a financial year.
It is important to note that the tax relief under Section 87A is only available to individuals and not to Hindu Undivided Families (HUFs), Association of Persons (AOPs), or Body of Individuals (BOIs).
How much tax relief is available under Section 87A?
If an individual’s taxable income is less than or equal to Rs. 5,00,000, they are eligible for a tax relief of up to Rs. 12,500 under Section 87A. The tax relief amount is the lower of the following two amounts:
- 100% of the income tax liability, or
- Rs. 12,500
For instance, if an individual’s taxable income is Rs. 4,50,000, their tax liability before applying Section 87A would be Rs. 12,500. However, after applying the tax relief of Rs. 12,500 under Section 87A, their tax liability would become zero.
It is important to note that the tax relief under Section 87A is only available to individuals whose total income (before deductions) is less than or equal to Rs. 5,00,000. Therefore, if an individual’s total income exceeds Rs. 5,00,000, they will not be eligible for the tax relief under Section 87A.
How is the tax relief calculated under Section 87A?
The tax relief under Section 87A is calculated as follows:
Step 1: Calculate the individual’s total income for the financial year. Step 2: Calculate the tax liability as per the applicable tax rates. Step 3: If the tax liability is less than or equal to Rs. 12,500, the tax relief under Section 87A will be equal to the tax liability. Step 4: If the tax liability is more than Rs. 12,500, the tax relief under Section 87A will be Rs. 12,500.
For instance, if an individual’s total income for the financial year is Rs. 4,80,000, their tax liability before applying Section 87A would be Rs. 12,500. However, after applying the tax relief of Rs. 12,500 under Section 87A, their tax liability would become zero.
When was Section 87A introduced?
Section 87A was introduced in the Finance Act of 2013 and was applicable for the assessment year 2014–15. Initially, the tax relief was available only to individuals whose taxable income did not exceed Rs. 5,00,000, and the maximum relief amount was Rs. 2,000.
Over the years, the tax relief amount has been increased, and the eligibility criteria have been revised to provide more relief to low-income earners.
What are the eligibility criteria for claiming tax relief under Section 87A?
To claim tax relief under Section 87A, an individual must meet the following eligibility criteria:
- They must be a resident individual.
- Their taxable income for the financial year must not exceed Rs. 5,00,000.
- They must be eligible to pay income tax as per the Income Tax Act.
If an individual meets all of the above criteria, they can claim tax relief under Section 87A.
Is the tax relief under Section 87A available to senior citizens and super senior citizens?
Yes, senior citizens and super senior citizens are also eligible for tax relief under Section 87A, provided their taxable income is less than or equal to Rs. 5,00,000. The term “senior citizen” refers to an individual who is 60 years or older, while a “super senior citizen” is an individual who is 80 years or older.
What is the impact of Section 87A on income tax collections?
Section 87A has a significant impact on income tax collections as it reduces the tax liability of low-income earners. According to the Income Tax Department, the tax relief under Section 87A resulted in a revenue loss of around Rs. 18,000 crore in the financial year 2019–20.
However, the tax relief also encourages more people to file their tax returns, as they can benefit from the tax relief even if they have a low taxable income. This leads to greater compliance with tax laws and helps increase the overall tax base.
Conclusion
Section 87A of the Income Tax Act is an important provision that provides relief to low-income earners. The tax relief helps reduce the tax burden on individuals whose taxable income falls below a certain threshold and encourages more people to file their tax returns.
Read Other Useful Blogs:
As a taxpayer, it is important to be aware of the provisions of Section 87A and take advantage of the tax relief if you are eligible for it. If you have any questions or need further guidance, it is advisable to consult a tax professional.
Frequently Asked Questions (FAQs)
Q: What is Section 87A of the Income Tax Act?
A: Section 87A of the Income Tax Act is a provision that provides tax relief to individuals whose taxable income is below a certain threshold.
Q: Who is eligible for tax relief under Section 87A?
A: An individual is eligible for tax relief under Section 87A if their taxable income does not exceed Rs. 5,00,000 and they are a resident of India.
Q: What is the tax relief amount under Section 87A?
A: The tax relief amount under Section 87A is currently Rs. 12,500 for the financial year 2021–22 (assessment year 2022-23).
Q: Is the tax relief under Section 87A available to senior citizens and super senior citizens?
A: Yes, senior citizens and super senior citizens are also eligible for tax relief under Section 87A, provided their taxable income is less than or equal to Rs. 5,00,000.
Q: Can an individual claim tax relief under Section 87A if they have income from sources other than salary, such as rental income or capital gains?
A: Yes, an individual can claim tax relief under Section 87A if their total taxable income, including income from all sources, does not exceed Rs. 5,00,000.
Q: How is the tax relief amount calculated under Section 87A?
A: The tax relief amount under Section 87A is calculated as the lower of the following amounts:
100% of the income tax liability, or Rs. 12,500
Q: Can an individual claim tax relief under Section 87A if they have already paid advance tax or TDS?
A: Yes, an individual can claim tax relief under Section 87A even if they have already paid advance tax or TDS, provided their taxable income is below the threshold limit.
Q: Is the tax relief under Section 87A applicable for non-resident individuals?
A: No, the tax relief under Section 87A is applicable only for resident individuals.
Q: Can an individual claim tax relief under Section 87A if they have not filed their tax return for the assessment year?
A: No, an individual can claim tax relief under Section 87A only if they have filed their tax return for the assessment year.
