Income Tax Rebate Under Section 87A

Let us begin by understanding what is rebate under section 87A of income tax act. Section 87A offers a tax rebate for individuals whose income level is within a certain threshold. The rebate is subtracted from the total tax payable, effectively lowering the tax burden for eligible individuals.

Also Read: Benefits of Filing Income Tax Return

Listed below are the eligibility criteria an individual needs to meet in order to claim a rebate u/s 87A when filing their income tax return:

• Should be a resident of India.
• Senior Citizens between the ages of 60 and 80 are eligible to claim rebates under Section 87A. Citizens above the age of 80 are not eligible for this scheme.
• The rebate is applicable on the total tax amount before the 4% education and health cess is applied.
• Once the deductions are applied, the total income should not cross the threshold of ₹5 lakhs under the old regime or ₹7 Lakhs under the new regime for FY 2023-24 & FY 2024-25.

Also Read: Who Should File Income Tax Return

The Union Budget has brought significant relief to India's tax-paying citizens. The tax rebates have increased to ₹60,000 from ₹25,000. Under the new regime, people earning up to ₹12.75 lakh in annual income are exempt from paying income tax. The restructuring will apply from fiscal year 2025-26.

Increased Income Threshold and Rebate Amount

The tax rebate threshold has been expanded from ₹7 lakh in the previous tax provision to ₹12 lakh under the new rebate under section 87A of the Income Tax Act. This negates people having an annual earning of ₹12 lakh or less from paying any income tax.
The rebate amount has also been increased from ₹25000 under the old rebate under section 87A Income Tax Act to ₹60,000.

Applicability and Conditions

The rebate is available only to resident nationals. It applies to the total tax before health and education cess and income taxed at special rates, and NRIs are exempt from this rebate provision.

Marginal Relief

The concept of marginal relief continues to apply to ensure that individuals who exceed the income threshold by a marginal amount do not incur disproportionately higher tax liabilities.

Filing Requirements

To avail of the rebate, individuals need to file their Income Tax Returns(ITRs), in which they declare their annual income and applicable deductions in detail and fully transparently.

These revisions aim to provide substantial tax relief to middle-income groups. By offering higher rebates and simplified compliance, they aim to encourage taxpayers to opt for the new tax regime.

Also Read: Standard Deduction in Income Tax

Individual taxpayers continue to enjoy marginal relief under the Income Tax provisions. If an individual’s income exceeds a hairline amount, they will not be exorbitantly taxed on the additional amount. Salaried employees earning up to ₹12.75 lakh would not have to pay taxes due to the ₹75,000 standard deduction in the new regime.

Calculation of Marginal Relief

The tax liability on ₹12.1 lakh income without marginal relief will be ₹61,500, and it can be calculated as:

• Step 1: Calculate your gross income for FY 2025-26.
• Step 2: Eliminate any tax exemptions and deductions you are eligible for. Some examples are medical insurance plans and tax-free savings schemes.
• Step 3: Determine your income after subtracting all the deductions available under the Income Tax Act of 1961.
• Step 4: File an ITR to declare your gross total income, tax deductions, and other tax liability.
• Step 5: Once your income tax return is filed, your 87A rebate will also be claimed automatically.

The benefit of rebate u/s 87A is not available because total taxable income exceeds ₹7,00,000 under the new tax regime

Also Read: How to File ITR Return

Meet Your Eligibility Criteria

Before filing for a tax rebate under section 87A of the Income Tax Act, make sure to check your eligibility for the said provision.

As mentioned above, rebate u/s 87A is only available for Indian residents. Moreover, senior citizens between 60 to 79 years of age are also eligible for rebates.

Opt for the Right Tax Regime

An income tax rebate is available with both new and old tax regimes.

However, the rebate amount is different in each regime. Hence, to maximise your tax savings, make sure to choose your tax regime wisely.

Check the Tax Rebate Amount

Tax rebate is calculated on the entire payable tax. Note that the rebate calculation does not include an education and health surcharge of 4%.

Also note that the rebate amount is either the specified rebate limit or the total payable tax, whichever is lower.

For instance, if your total payable tax is ₹70,000 and you have chosen the new tax regime, then your payable tax becomes ₹10,000 after applying a rebate of ₹60,000.

Check the Applicable Tax Obligations

Before claiming your tax rebate, check out the liabilities against which you can make a claim.

As of now, you can claim tax rebate on your normal income and long-term capital gains.

Note that the short-term capital gains on specified investment instruments are subject to a flat tax of 15%.

Check Non-applicable Tax Obligations

It is also crucial to check the tax liabilities for which you can not claim relief under IT section 87A.

It includes LTCGs on equity shares and mutual funds u/s 112A.

Also Read: Income Tax Deductions Under 80C

The AY 2025-26 income tax act rebate under section 87A is a strategic attempt made on the part of the government to relieve the middle-class income earners, further simplify the tax system, and encourage economic activity. Taxpayers are encouraged to assess their circumstances and consult with financial advisors to make informed decisions in regard to their tax planning.

In this regard, you can invest in a health insurance plan to add to your tax savings. For example, by investing in TATA AIG medical insurance plans, you can also claim tax deductions up to ₹25,000 for health insurance premiums paid towards yourself or your dependents.

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