Taxation is an important part of every citizen's financial life, yet understanding the importance of tax laws can often feel like solving puzzles. However, within the pages of the Indian Income Tax Act, 1961, lies a provision that can significantly alleviate the tax burden for eligible individuals – Section 87A tax rebate.

In this blog, we'll explore the details of Section 87A, its eligibility criteria, calculation methods, diverse perspectives, and practical implications.

What is Section 87A Tax Rebate?

Section 87A of the Income Tax Act, 1961, provides relief to individual taxpayers by granting them a rebate on their income tax liability. The primary objective behind this provision is to ease the tax burden on individuals with lower incomes, offering them much-needed financial respite.

Example- For the assessment year 2024-25, resident individuals earning taxable incomes of up to Rs. 7,00,000 are eligible for a rebate of either Rs. 25,000 or the actual tax payable, whichever is lesser under the new tax regime. Similar rebate is allowed under the old tax regime, up to Rs 12,500/- to an individual earning total income up to Rs. 5,00,000.

Eligibility Criteria Revisited

To avail of the benefits under Section 87A, taxpayers must meet specific eligibility criteria:

• Resident Individuals: Only resident individuals are entitled to claim the rebate under Section 87A.
• Income Threshold: The rebate is available to individuals whose total income does not exceed a prescribed threshold. As of the financial year 2024-25, this threshold stands at Rs. 5,00,000 under the Old Tax Regime and Rs. 7,00,000/- under the New Tax Regime.
• Tax Liability Factor: The rebate amount cannot exceed the total tax liability of the taxpayer. In cases where the tax payable is lower than the rebate amount, the rebate will be restricted to the tax payable; however, in a case, where the total income is within the prescribed threshold but the tax payable is more than the tax rebate, tax has to be paid to the extent of the difference in the amount between the tax payable and the tax rebate.

Understanding the Rebate Calculation

Understanding how the rebate under Section 87A is computed is paramount for taxpayers seeking to optimize their tax planning strategies. Let's elucidate the process with an illustrative example:

Consider Ms. Yuzy, whose total income for the financial year 2023-24 amounts to Rs. 6,70,000. As her income falls below the Rs. 7,00,000 threshold under the new tax regime, she qualifies for the full rebate as under.

Claiming Your Rebate

People can claim the rebate under Section 87A while filing their income tax returns, ensuring accurate calculations and adherence to legal requirements.

Diverse Perspectives on Section 87A Tax Rebate

While Section 87A aims to provide relief to taxpayers with lower income, some argue that the threshold for eligibility should be revised periodically to keep pace with inflation and rising living costs. On the other hand, others advocate for expanding the scope of the rebate to include more taxpayers facing financial constraints.

Conclusion

Navigating the intricacies of income tax laws can be overwhelming, but understanding provisions like Section 87A tax rebates can significantly benefit taxpayers. By leveraging this rebate, eligible individuals can reduce their tax burden and optimize their finances.

[Disclaimer- The article is only for educational purposes and is not to be construed as tax advice. The relevant provisions of the Income-tax Act may be referred to for complete understanding.]