Individual taxpayers who have a total income below a specified threshold are eligible for tax relief through Section 87A of the Income Tax Act, 1961. This section provides for a rebate on the tax payable by the taxpayer, which effectively reduces the tax liability. Let us take a closer look at Section 87A of the Income Tax Act and understand its provisions in detail.
Overview of Section 87A:
Section 87A provides for a tax rebate of up to Rs. 12,500 to individual taxpayers whose total income does not exceed Rs. 5 lakh for the assessment year 2022-23 (FY 2021-22). The rebate is available to residents as well as non-residents who are individuals, and the taxpayer should not be a senior citizen or super senior citizen to claim the rebate.
Eligibility Criteria:
To claim the rebate under Section 87A, the taxpayer must meet the following eligibility criteria:
- The taxpayer should be an individual.
- The total income of the taxpayer should not exceed Rs. 5 lakh for the assessment year 2022-23.
- The taxpayer should not be a senior citizen or super senior citizen.
Calculation of Rebate:
The rebate under Section 87A is calculated as follows:
- If the total income of the taxpayer does not exceed Rs. 5 lakh, the rebate amount will be equal to 100% of the tax payable or Rs. 12,500, whichever is less.
- If the total income of the taxpayer exceeds Rs. 5 lakh, the rebate amount will be reduced by the amount of tax payable, subject to a maximum rebate of Rs. 12,500.
Illustration:
Let us understand the provisions of Section 87A with the help of an illustration:
Suppose Mr. A has a total income of Rs. 4.5 lakh for the assessment year 2022-23. In this case, Mr. A will be eligible for a tax rebate of Rs. 12,500 under Section 87A, and his tax liability will be reduced to zero.
However, if Mr. A has a total income of Rs. 5.5 lakh, his tax liability will be calculated as follows:
Taxable Income = Rs. 5.5 lakh – Rs. 2.5 lakh (basic exemption limit) = Rs. 3 lakh
Tax payable on Rs. 3 lakh = Rs. 5,000 (5% of Rs. 3 lakh)
Rebate under Section 87A = Rs. 5,000 (since the rebate is subject to a maximum of Rs. 12,500)
Net Tax Payable = Rs. 5,000
Benefits of Section 87A:
The primary benefit of Section 87A is that it provides tax relief to individual taxpayers with lower incomes. This section ensures that taxpayers with total incomes of up to Rs. 5 lakh do not have to pay any tax, and those with incomes exceeding Rs. 5 lakh can also benefit from a rebate of up to Rs. 12,500.
The provision helps reduce the tax burden on individuals and provides some relief, particularly to those in the lower income brackets. Additionally, it also helps promote savings and investment, as taxpayers can use the amount saved in taxes to invest in various savings schemes or funds.
Applicability of Section 87A:
Section 87A is applicable to all individual taxpayers whose total income for the assessment year does not exceed Rs. 5 lakh. However, it is important to note that the rebate is not available to senior citizens or super senior citizens.
Therefore, if the total income of a senior citizen or super senior citizen does not exceed Rs. 5 lakh, they will not be eligible for the rebate under Section 87A. However, senior citizens and super senior citizens can still benefit from the higher basic exemption limits available to them under the Income Tax Act.
Limitations of Section 87A:
While Section 87A provides relief to individual taxpayers, it does have some limitations. The primary limitation is that the rebate is only available to taxpayers with a total income of up to Rs. 5 lakh. This means that taxpayers with incomes exceeding Rs. 5 lakh cannot benefit from the rebate, even if their tax liability is lower than the rebate amount.
Additionally, the rebate amount is subject to a maximum of Rs. 12,500, which means that taxpayers with lower tax liabilities will not be able to claim the full amount. This limitation can be especially challenging for taxpayers who are in the lower income brackets as they may not be able to take full advantage of the rebate.
Impact of Section 87A on Taxpayers:
Section 87A has a significant impact on taxpayers, especially those with lower incomes. The provision effectively reduces the tax liability of taxpayers and can help them save a considerable amount of money. For instance, if an individual taxpayer with a total income of Rs. 4.5 lakh claims the rebate under Section 87A, they will not have to pay any tax. This can be a significant relief for taxpayers who are struggling to make ends meet.
Moreover, the provision can encourage taxpayers to save and invest more. Since they will have more disposable income, they can use the saved amount to invest in various savings schemes or funds. This, in turn, can help them grow their wealth and secure their financial future.
Role of Section 87A in Promoting Tax Compliance:
Section 87A also plays a crucial role in promoting tax compliance among taxpayers. By providing relief to taxpayers with lower incomes, the provision incentivizes them to comply with the tax laws and file their tax returns correctly. This, in turn, can help the government increase its tax revenue and fund various social welfare schemes and development projects.
Moreover, the provision helps create a more equitable tax system by providing relief to taxpayers with lower incomes. It ensures that they do not have to pay taxes that they cannot afford and, at the same time, helps the government meet its revenue targets.
Conclusion:
In conclusion, Section 87A of the Income Tax Act, 1961 provides tax relief to individual taxpayers whose total income does not exceed Rs. 5 lakh. The rebate amount is calculated based on the tax payable, subject to a maximum of Rs. 12,500. The provision aims to provide relief to taxpayers with lower incomes and reduce their tax burden. Therefore, it is essential for taxpayers to be aware of the provisions of Section 87A and claim the rebate, if eligible, while filing their tax returns.
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Frequently Asked Questions (FAQs)
- Who is eligible to claim the rebate under Section 87A of the Income Tax Act, 1961?
Individual taxpayers whose total income for the assessment year does not exceed Rs. 5 lakh are eligible to claim the rebate under Section 87A.
2. What is the maximum rebate amount available under Section 87A?
The maximum rebate amount available under Section 87A is Rs. 12,500.
3. Is the rebate under Section 87A available to senior citizens or super senior citizens?
No, the rebate under Section 87A is not available to senior citizens or super senior citizens.
4. Can taxpayers claim the rebate under Section 87A if their income exceeds Rs. 5 lakh?
No, taxpayers whose income exceeds Rs. 5 lakh are not eligible to claim the rebate under Section 87A, even if their tax liability is lower than the rebate amount.
5. Is the rebate under Section 87A applicable to all types of taxpayers?
No, the rebate under Section 87A is only applicable to individual taxpayers and not to Hindu Undivided Families (HUFs), firms, or companies.
6. How is the rebate under Section 87A calculated?
The rebate under Section 87A is calculated as 100% of the income tax liability or Rs. 12,500, whichever is lower.
7. Can taxpayers claim the rebate under Section 87A if they have already paid their taxes?
No, the rebate under Section 87A can only be claimed while filing the tax return. It cannot be claimed if the taxes have already been paid.
8. Is the rebate under Section 87A available for all assessment years?
No, the rebate under Section 87A is only available for specific assessment years, as announced by the government in the annual budget.
9. Can taxpayers claim the rebate under Section 87A if they have investments or deductions?
Yes, taxpayers can claim the rebate under Section 87A even if they have made investments or claimed deductions, as long as their total income does not exceed Rs. 5 lakh.
10. What are the penalties for non-compliance with the provisions of Section 87A?
Non-compliance with the provisions of Section 87A can result in penalties and legal consequences, such as fines and prosecution under the Income Tax Act, 1961. It is essential for taxpayers to comply with all the requirements and file their tax returns correctly to avoid such consequences.
