Amended and updated notes on section 87A of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to rebate of income-tax in case of certain individuals.
Chapter VIII (Sections 87 to 89) of the Income Tax Act 1961 deals with the provisions related to rebates and reliefs. Section 87A of IT Act 1961-2023 provides for rebate of income-tax in case of certain individuals.
Recently, we have discussed in detail section 87 (Rebate to be allowed in computing income-tax) of IT Act 1961. Today, we learn the provisions of section 87A of Income-tax Act 1961. The amended provision of section 87A is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 87A of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-87A: Rebate of income-tax in case of certain individuals
An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of twelve thousand and five hundred rupees, whichever is less.
Notes on Section 87A – Income Tax Rebate for Individuals
Individual assessee having total income up to ₹5 Lakhs can claim rebate of ₹12500 for assessment year 2023-24 under section 87A of Income Tax Act 1961. You can claim your rebate of income tax under section 87A of the Income-tax Act, 1961 as amended by the Finance Act, 2019. Section 87A was newly inserted by the Finance Act, 2013 to provide tax relief to an individual resident in India.
What is the rebate for AY 2023-24?
The amount of rebate allowable under section 87A has been increased to ₹12500 from AY 2020-21 onwards. Therefore, the increased amount of rebate shall take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2023-24 and subsequent years.
Example: If your total income for FY 2022-23 does not exceed ₹5,00,000 then you will be eligible to claim rebate in income-tax u/s 87A up to ₹12,500 at the time of filing your Income Tax Return for AY 2023-24. Thus, this tax relief will be provided to individual tax payers who are in the 10% tax slab.
How is Section 87a rebate calculated?
Any resident individual having total income not exceeding ₹500000 shall get a tax relief upto ₹12500 i.e. the rebate would be the tax payable/liability subject to maximum ₹12500. Thus, the amount of rebate shall be 100 per cent of income-tax or ₹12500, whichever is less.
The aggregate amount of rebate under section 87A shall not exceed the amount of income-tax as computed before allowing such rebate on the total income of the assessee with which he is chargeable for any assessment year.
Who is eligible for 87a rebate?
Eligibility Criteria for Claiming 87A Tax Rebate: Following are some basic conceptual information which might solve your initial queries regarding the provisions of section 87A of the Income-tax Act, 1961:
- Rebate shall be available to both Male and Female assesses
- Since, this is only for Resident Individual, Non-resident assessee will not get relief u/s 87A.
- This is also available for senior citizen (age 60 or above) but not for super senior citizen.
- Section 87A would be available only if total income not more than ₹5 Lakh.
- Rebate shall be deducted from the amount of income-tax and not from total income.
- Section 87A is a rebate under CHAPTER VIII and not a deduction CHAPTER VIA.
- This rebate shall be applicable from 1st April, 2020 i.e. A.Y. 2020-21.
- Amount of rebate would be lower of tax payable or ₹2,500 till FY 2018-19 and 12,500 for FY 2019-20 onwards.
Note that this rebate is available to only individual assessee and not to other persons like HUF, AOP/BOI, Firm and company. Further, the non-resident individual and resident individual with age of 80 years or more shall not be eligible for rebate under section 87A of Income-tax Act, 1961.
FAQs related to 87A rebate of Income-tax
1) Increased Exemption Limit due to Section 87A:
Many tax payers have misconceptions regarding the conceptual clarity of section 87A. Someone told that this section has been inserted to increase the exemption limit from ₹2,50,000 to ₹3,75,000 as because tax deduction allowed shall be @10% on ₹1,25,000 which results the tax rebate of ₹12,500.
Nevertheless, this is wrong understanding. Take a simple example of a senior citizen i.e. resident individuals of the age of 60 years or more but less than 80 years. Accordingly, they would not have got the benefit of section 87A as the exemption limit for them is already ₹3,00,000.
But, this is not the case, the resident senior citizen shall also get the rebate u/s 87A of the Income-tax Act, 1961.
2) No ITR Filing due to Section 87A:
There is another misunderstanding that tax payers whose total income does not exceed ₹3,75,000 shall not file their ITR. Please, this is very big misinterpretation of section 87A to relate it with filing return of income.
This is because ITR is required to be filed if the total income exceeded the maximum amount which is not chargeable to income-tax. On the other hand, the rebate u/s 87A shall be given to those resident individuals whose total income does not exceed ₹5,00,000.
Thus, only resident individuals of the age of 80 years or more at any time during the previous year shall not get the benefit of rebate under section 87A as the exemption limit for them is already ₹5,00,000.
3) Claim Refund up to INR 12500:
One of our visitors asked me the procedure for claiming refund under section 87A of Income Tax Act after filing ITR. Actually, his tax liability would be ₹10800 for the assessment year 2023-24.
Note that the rebate under section 87A i.e. the amount of relief would be the tax payable or ₹12,500, whichever is less. Hence, if your computed income-tax on total taxable income is ₹10800, you are not required to pay tax.
However, you have to file your ITR within due date and rebate shall be claimed while filing the return just before adding the Education Cess, Secondary and Higher Education Cess.
But, you are not allowed to claim a refund after filing ITR for the balance amount i.e. ₹1700 (12500-10800). In other words, even if the total tax liability is less than five thousand rupees there will not be any entitlement for claiming the refund.