The rebate under Section 87A was first introduced in the year 2013 which was changed from time to time. This section provides a tax rebate to the individual taxpayers if their total income is less than Rs 5 Lakhs after claiming deductions. For the assessment year 2022-23, an individual taxpayer, who is a resident of India for income tax purposes, is entitled to claim a tax rebate up to Rs. 12,500 against his tax liability if his income does not exceed Rs.5 lakh. As super senior citizens above 80 years can earn tax-free income to up to Rs 5 lakh, they are not eligible to claim rebates under section 87A. Only resident individual taxpayers can claim the income tax rebate. NRIs, HUFs, Associations, and corporates are not eligible to claim an income tax rebate under Section 87A. To calculate the rebate follow the below steps.
Income Tax Department defines section 87A as under;
“An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 is entitled to claim rebate under section 87A. Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87Awill be lower of 100% of income-tax liability or Rs. 12,500. In other words, if the tax liability exceeds Rs. 12,500, rebate will be available to the extent of Rs. 12,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 5,00,000”.
To calculate the rebate you need to follow the below steps.
- Calculate your gross total income for the financial year: Add up income from all sources like salary, capital gains, house rent and income from other sources.
- Find the Net Taxable Income – Reduce your tax deductions for tax savings, investments etc to gross income.
- Claim u/s 87A: Taxable income after applicable deductions should not exceed Rs 5 lakhs in a financial year to claim relief under section 87A
File an income tax return declaring your gross income and tax deductions. If your taxable income is within Rs 5 lakh you will be exempted from paying income tax. The maximum rebate under section 87A for the AY 2022-23 (FY 2021-22) is Rs 12,500. Once the rebate is claimed under section 87A, the assessee’s income tax liability automatically becomes nil.