Income Tax Rebate Under Section 87A: As Per Financial Year 2024-25

Our Indian taxation system is designed in such a way that it ensures that the Indian citizens contribute to the country's economy through taxes. But not everyone in India has the same income bracket so, in order to provide relief to the low-income bracket taxpayers there are many rebates and deductions. One such important and noticeable rebate is Section 87A in the Income Tax Act.

Section 87A provides individuals with tax assistance, which lowers their tax payment. With the new tax structure, Indian residents with taxable incomes up to Rs 7,00,000 are eligible for this rebate. In India, a tax rebate of up to Rs 25,000 is provided to lower an individual taxpayer's tax obligation. In this article, we will cover everything you need to know about Section 87A and its income tax rebate.

What is Section 87A Rebate for Financial Year (2024-25)?

Indian Residents who are individual taxpayers and have incomes up to Rs 7 lakhs are fully eligible for tax credits under Section 87A of the Income Tax Act, 1961 . For the taxpayers in the 10% tax bracket, the income tax rebate under Section 87A offers some respite. Section 87A of the Income Tax Act, 1961 allows a person whose net annual income does not exceed Rs.5 lakh to seek a tax rebate. This suggests that a person may be eligible for a tax refund of up to Rs. 2,000. Thus, the deduction will be either Rs. 2000 or the whole amount of an individual's pay, which is less.

Another essential aspect of Section 87A of the Income Tax Act is that it is only available to individuals, not Hindu Undivided Families, BOI/AOP, companies, or any other firm. Moreover, the total rebate amount should not exceed the amount of the income tax calculated before the deduction on the total income of the person with which he/she will be charged for the assessment year.

Introduction of Section 87A

In 2013, The rebate under Section 87A was first proposed and has been in effective for several years now. It was last updated in 2019. Under the revised provisions of Section 87A, any individual with an annual taxable income of up to Rs 5 lakhs is eligible for an income tax rebate of Rs12,500. This basically means that anyone who earns less than Rs 5 lakhs per year is completely free from income tax, which allows them to save money on income tax in India.

Eligibility for the Rebate under Section 87A

The Eligibility is based on several criterias, the main eligibility conditions are as follows:

• Individuals who are Indian residents can only claim this rebate. If you are a foreign national or NRI (non-resident Indian) you are not eligible.
• Indians whose income does not exceed Rs 7 lakhs are eligible.
• Only Individual Taxpayers are eligible.

Steps For Claiming Rebate under Section 87A

The following steps must be followed in order to claim a tax rebate under Section 87A:

Step 1: Calculate your gross total income for the year 2024–2025

Step 2: Subtract any tax deductions that you have like life insurance policies, investments, or any other tax-saving strategies. Use an income tax calculator to assist with accurate calculations.

Step 3: Calculate your combined income after subtracting the tax deductions allowed by the Income Tax Act, 1961.

Step 4: When filing ITR (Income Tax Return), declare your gross income and tax deductions

Step 5: Following the above steps, you can claim a tax rebate under Section 87A.

Things to Keep in Mind When Claiming Rebate under Section 87A

Before you avail the rebate under section 87A, keep the following points in mind:

• Only Indian residents are eligible.
• Senior citizens ageing 80 years and above are not eligible for rebate
• The lower limit permissible under the section 87A rebate or the tax payable is only considered.
• The rebate can be availed under both old and new tax regimes .

Benefits of Claiming Rebate under Section 87A

Section 87A offers relief to individual taxpayers that belong to the lower and middle-income slabs. The introduction of this rebate has been extremely beneficial in reducing the tax liability of taxpayers with low incomes. Here are few of the benefits of claiming rebate under section 87A:

Tax Liability Reduction

The topmost benefit of claiming the rebate under Section 87A is the reduction in tax liability. For individuals with total income up to Rs 7 lakhs in a financial year, can reduce tax up to Rs 25000. In some cases, there can be little or even no tax. The rebate is calculated after seeing the income tax slab rates.

High Disposable Income

Claiming the rebate allows people to keep more of their hard-earned money that increases their disposable income. Individuals can use this saved money from paying less tax for other vital expenses, such as savings, investments, or everyday living costs. Individuals earning less than Rs 7 Lakhs can benefit from increased discretionary income, leading to greater financial freedom and improved overall economic well being.

Better Tax Planning to save and invest

The Section 87A engages individuals in better tax planning and exploring different ways for investing and saving. So, individuals can invest more in NPS (National Pension Scheme), PPF (Public Provident Fund) or various other life insurance plans.

Applicable for Both Old and New Tax Regimes

One of the advantages of Section 87A is that it applies to both the new as well as old tax regimes. Tax can be claimed whether the taxpayer chooses a new regime or an old regime.

Simple, straightforward and Hassle-Free Process

There is no complicated documentation or paperwork when it comes to claiming rebate under Section 87A. The taxpayers just need to calculate the total income and apply for a rebate during the income tax filing. You can also use available financial calculators for better planning.
Overall, the tax rebate under Section 87A is a very useful measure for resident residents, including senior citizens aged 60 to 79 years, to lower their tax liabilities. Section 87A fosters compliance and promotes economic well-being by lowering eligible taxpayers' tax liabilities, resulting in a fairer and more inclusive tax system.

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