Understanding Section 87A of the Income Tax Act in India

Section 87A of the Income Tax Act, 1961, is a provision that provides tax relief to individual taxpayers in India. This section is particularly beneficial for those with a lower income, as it allows for a rebate on the income tax payable, effectively reducing the overall tax liability. Here’s a detailed explanation of Section 87A:

Key Features of Section 87A

1. Eligibility Criteria:

   • Section 87A is applicable only to individual taxpayers, including both resident and non-resident individuals.
   • The rebate is available to individuals whose total taxable income does not exceed a specified limit.

2. Income Limit:

   • As of the financial year 2023-24 (Assessment Year 2024-25), the income limit for claiming the rebate under Section 87A is ₹7 lakh. This means that if an individual's total taxable income is ₹7 lakh or less, they are eligible for a rebate.

3. Rebate Amount:

   • The maximum rebate available under Section 87A is ₹25,000. This means that if your total tax liability is ₹25,000 or less, you can claim a full rebate, resulting in no tax payable.
   • If your tax liability exceeds ₹25,000, you can still claim a rebate of ₹25,000, but you will need to pay the remaining tax amount.

4. Calculation of Taxable Income:

   • To determine eligibility for the rebate, the total taxable income is calculated after considering all deductions and exemptions available under the Income Tax Act, such as those under Sections 80C to 80U.

5. Applicability:

   • Section 87A is applicable under both the old tax regime and the new tax regime introduced in the Budget 2020. Taxpayers can choose either regime based on their financial situation and the deductions they wish to claim.

Example of Section 87A

Let’s consider an example to illustrate how Section 87A works:

• Scenario: An individual has a total taxable income of ₹6,50,000.

• Tax Calculation:

  • Assuming the individual is eligible for the rebate, their tax liability before the rebate is calculated as per the applicable tax slabs.
  • If the calculated tax liability is ₹15,000, the individual can claim a rebate of ₹15,000 under Section 87A, resulting in no tax payable.

• Another Scenario: An individual has a total taxable income of ₹8,00,000.

• Tax Calculation:

  • In this case, the individual is not eligible for the rebate under Section 87A since their income exceeds ₹7 lakh. They will need to pay tax on the full amount as per the applicable tax slabs.

Conclusion

Section 87A is a valuable provision for individual taxpayers in India, providing relief to those with lower incomes. By allowing a rebate on income tax, it helps to reduce the tax burden and promote financial well-being among individuals. Taxpayers should be aware of this provision and ensure they calculate their taxable income accurately to determine their eligibility for the rebate. Always consult with a tax professional or financial advisor for personalized advice and to stay updated on any changes in tax laws.