Introduction

Navigating tax liabilities can be challenging, but the Section 87A tax rebate offers a potential reduction in your taxes, especially when the right tax regime is selected. This guide explores the details of claiming the Section 87A rebate, covering eligibility, claim procedures, and limits for various fiscal years.

How to Claim a Tax Rebate Under Section 87A

1. Determine Gross Total Income: Begin by calculating your total income for the financial year, including all income sources before deductions.
2. Apply Deductions: Deduct eligible tax-benefiting amounts like savings or investments under the Income Tax Act.
3. Calculate Total Income: Assess your total income post-deductions to determine rebate eligibility.
4. Declare in ITR: Accurately report your income and deductions in your Income Tax Return.
5. Claim Rebate: If your total income is within Rs 7 lakh for the new regime or Rs 5 lakh for the old regime in FY 2023-24, claim the rebate under Section 87A.
6. Understand Rebate Limits: For AY 2024-25, the rebate cap is Rs 25,000 for the new regime and Rs 12,500 for the old regime.

Example Calculation FY 2023-24

Consider Mr. Ravi, aged 36, with a total income of Rs 7,15,000. For the new tax regime, calculate his liability:

• Excess Income: Income above Rs 7 lakh is Rs 15,000.
• Tax Liability: No tax on the first Rs 3 lakh, Rs 15,000 on the next Rs 3 lakh (5%), and Rs 11,500 on the remaining Rs 1.15 lakh (10%). Initial tax totals Rs 26,500.
• Apply Rebate: The rebate reduces tax by Rs 15,000.
• Final Tax Payable: After a 4% health & education cess, the amount is Rs 15,600.

Eligibility for Section 87A Rebate

FY 2022-23: Resident individuals with total income after Chapter VI-A deductions not exceeding Rs 5 lakh are eligible for a Rs 12,500 rebate.

FY 2018-19 & FY 2017-18: Residents with income below Rs 3.5 lakh could claim up to Rs 2,500.

Rebate Limits for Various Financial Years

• FY 2023-24: Rs 7 lakh for the new regime (Rs 25,000) and Rs 5 lakh for the old regime (Rs 12,500).
• FY 2022-23: Both regimes cap at Rs 5 lakh, Rs 12,500 rebate.
• FY 2021-22 to 2019-20: Old regime limit at Rs 5 lakh with Rs 12,500 rebate.
• FY 2018-19 & FY 2017-18: Rs 3.5 lakh limit with a Rs 2,500 rebate.

FAQs

• Income Exceeding Limits: No rebate if total income exceeds specific financial year limits.
• Rebate Applicability: Available for both old and new tax regimes with varying criteria.
• Rebate Application: Must be applied before cess calculation.
• Capital Gains: Not applicable to taxes on long-term capital gains.

Summary

Section 87A offers significant tax reduction opportunities. By comprehending the eligibility and rebate limits, you can effectively minimize tax liabilities. Regular updates on legislation ensure maximum benefit from this rebate.

Conclusion

Securing a rebate under Section 87A can streamline tax payments, cutting down costs significantly. By meeting the outlined criteria, you strengthen your tax planning and simplify the entire filing process. Consider using efficient tax tools like ClearTax to stay compliant.