Section 87A in Income Tax Act: A Comprehensive Guide on Tax Rebate for Low-Income Taxpayers.

March 16, 2023

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Table of Contents

Introduction:

Section 87A of the Income Tax Act is a provision that provides relief to taxpayers earning income up to a certain limit. The section was introduced in the Finance Act of 2013 and was amended several times since then. This blog will explain what Section 87A is, who is eligible for it, and how to calculate the tax relief under this section.

What is Section 87A?

Section 87A provides a tax rebate to individual taxpayers who earn income up to a certain limit. The rebate is available to resident individuals, which means individuals who have stayed in India for a minimum of 182 days in the financial year. The amount of rebate under this section is deducted from the tax payable by the taxpayer.

Who is eligible for Section 87A?

To be eligible for the rebate under Section 87A, the taxpayer must meet the following conditions:

The taxpayer must be a resident individual.
The total income of the taxpayer must be less than or equal to Rs. 5,00,000.
The taxpayer’s tax liability should not be nil after considering the deductions under Section 80C to 80U.

How to calculate tax relief under Section 87A?

The tax relief under Section 87A is calculated as follows:

Determine the taxpayer’s total income.
Calculate the tax payable on the total income.
If the tax payable is less than Rs. 12,500, the rebate under Section 87A will be equal to the tax payable.
If the tax payable is more than Rs. 12,500, the rebate under Section 87A will be limited to Rs. 12,500.

For example, if a taxpayer’s total income is Rs. 4,50,000, and the tax payable on it is Rs. 10,000. The rebate under Section 87A will be equal to Rs. 10,000, which means the taxpayer will not have to pay any tax.

Benefits of Section 87A:

Section 87A is a helpful provision for low-income taxpayers as it provides tax relief and benefits. Some of the benefits of Section 87A are as follows:

Reduces the tax burden: Taxpayers earning up to Rs. 5,00,000 are eligible for a rebate under Section 87A, which helps to reduce the tax burden on low-income taxpayers.
Encourages tax compliance: The rebate under Section 87A encourages taxpayers to file their tax returns even if their income is below the taxable limit.
Increases disposable income: Taxpayers who receive a rebate under Section 87A can use the saved money for other essential expenses or savings, which ultimately increases their disposable income.
Simplifies tax calculation: The rebate under Section 87A is a simple and straightforward calculation that helps taxpayers easily calculate their tax liability.

Limitations of Section 87A:

While Section 87A is a beneficial provision, it also has some limitations. Some of the limitations of Section 87A are as follows:

Not applicable to non-resident individuals: The rebate under Section 87A is only available to resident individuals and is not applicable to non-resident individuals.
Limited benefit: The maximum tax rebate under Section 87A is Rs. 12,500. Therefore, taxpayers with a higher income may not benefit much from this provision.
Not applicable to all deductions: The rebate under Section 87A is applicable only after considering the deductions under Section 80C to 80U. Therefore, taxpayers who do not have any deductions under these sections may not benefit from this provision.

Conclusion:

Section 87A provides a tax rebate to individuals with lower income. The rebate helps reduce the tax burden on low-income taxpayers and encourages them to file their tax returns. It is important to note that the rebate is available only to resident individuals and the tax liability should not be nil after considering deductions. Taxpayers can use the tax relief calculator available on the Income Tax Department’s website to determine the rebate under Section 87A.

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Frequently Asked Questions (FAQs)

Who is eligible for the tax rebate under Section 87A?
Answer: Resident individuals whose total income is less than or equal to Rs. 5,00,000 are eligible for the tax rebate under Section 87A.

How much is the tax rebate under Section 87A?
Answer: The tax rebate under Section 87A is equal to the tax payable, subject to a maximum of Rs. 12,500.

Can non-resident individuals claim the tax rebate under Section 87A?
Answer: No, non-resident individuals are not eligible for the tax rebate under Section 87A.

Is the tax rebate under Section 87A applicable to all types of income?
Answer: Yes, the tax rebate under Section 87A is applicable to all types of income, including salary, business income, capital gains, etc.

Is the tax rebate under Section 87A applicable to senior citizens or super senior citizens?
Answer: Yes, senior citizens and super senior citizens who meet the eligibility criteria can claim the tax rebate under Section 87A.

Can taxpayers with a taxable income above Rs. 5,00,000 claim the tax rebate under Section 87A?
Answer: No, taxpayers with a taxable income above Rs. 5,00,000 are not eligible for the tax rebate under Section 87A.

Can taxpayers claim the tax rebate under Section 87A if they have availed deductions under Section 80C to 80U?
Answer: Yes, taxpayers can claim the tax rebate under Section 87A after considering the deductions under Section 80C to 80U.

Is the tax rebate under Section 87A available for the financial year 2021-22?
Answer: Yes, the tax rebate under Section 87A is available for the financial year 2021-22.

Can taxpayers claim the tax rebate under Section 87A if they have income from foreign sources?
Answer: Yes, taxpayers can claim the tax rebate under Section 87A even if they have income from foreign sources, provided they meet the eligibility criteria.

Can taxpayers claim the tax rebate under Section 87A if they file their tax returns after the due date?
Answer: Yes, taxpayers can claim the tax rebate under Section 87A even if they file their tax returns after the due date, subject to certain conditions.