Before knowing about the Tax rebate under Section 87A , it is important to know about the income tax rebate. Income tax rebate is a refund on the taxes a person gets when the tax liability is less than what the individual has paid. When you pay taxes more than the stated tax in simple language, you get a refund on taxes.
People get this refund at the end of the fiscal year. There are many ways through which you can avail of the tax rebate. There are various Sections under the Income-tax department, which focuses on who should get a refund and who should not. One of those sections is section 87A.
Tax Rebate Under Section 87A FY 2019-2020 (AY 2020-2021)
The revised section 87A of the Income Tax Act states that people who earn 5 lakhs are liable to get a full income tax rebate. It means that the tax rebate limit for this section is now increased from INR 2500 to INR 12500. The revised section 87A is made for workers who earn 5lakhs per year, claiming a tax rebate.
Important Points To Remember About Section 87A
However, before you proceed to claim your tax rebate, there are some important points which you should take note of.
i. Only those who are Indian residents and have Aadhar card and birth certificate stating the same can claim the tax rebate under section 87A.
ii. The Section 87A tax rebate is applicable for both men and women.
iii. People earning more than 5 lakhs cannot avail of the tax rebate under this section.
iv. Only individuals can apply for the tax rebate. No firms, companies, or industries can avail of this tax rebate.
v. Senior citizens are not eligible to apply for a tax rebate under this section.
vi. No NRIs are eligible to apply for this tax rebate.
These were some of the points which you need to take care of. Once you take care of these points, then you would be able to know whether you can apply for a tax rebate under Section 87A
Eligibility Criteria To Avail Tax Rebate Under Section 87A
There are certain eligibility criteria that every individual need to fulfill to claim the tax rebate under section 87A. Furthermore, the eligibility criteria are based on which sub-section of Section 87A the individual is claiming.
Eligibility Criteria For 87A FY 2019-20 (AY 2020-21)
If you apply for a tax rebate under section 87A for FY 2019-20, you need to fulfill the following criteria.
- You are an Indian citizen. You need to have your birth certificate and Aadhar card for proving that you are an Indian citizen.
- You are an individual applying for the rebate and not any firm or company.
- Your total income, after all the deduction, as mentioned in VI-A, is INR 5 lakh and does not exceed the stated amount.
- As the tax limit is INR 12,500, if your tax payable amount is less than this, you do not have to pay any tax.
Eligibility Criteria For 87A FY 2018-19 and FY 2017-18
If you apply for a tax rebate under section of 87A for the year 2018- 2019, you need to fulfill the below eligibility criteria.
- The individual applying for the tax rebate should be a citizen of India and should have your Aadhar card and birth certificate ready for verification.
- It would help if you were an individual applying for the rebate and not a firm or company.
- Your total income should not exceed INR 3.5 lakh, after all the deductions.
- If your net tax payable amount is not more than INR 2500, then you do not have to pay any tax.
The standard deduction is the amount of your salary, which is free from tax. It means you can even use this amount to reduce your tax bill. In 2018, the finance minister increased the standard deduction to INR 40,000, which everyone happily accepted.
However, in the year 2019, the standard deduction was again changed, and an additional amount of INR 10,000 was added in this amount. Currently, the standard deduction is INR 50,000. It means you can have INR 50,000 of your salary, which is free of taxes.
The standard deduction is important as it allows a person to use the money for his/her basic needs instead of paying all the amount for taxes. The standard deduction varies based on the salary, which means it might be less than INR 50,000.
Calculating Tax Rebate Under Section 87A
If you are wondering how to calculate the tax rebate and see whether you are eligible for the tax rebate under section 87A or not, then we are here to help you. Follow the steps below, and you would easily know if you are eligible to apply for a tax rebate or not.
i. Firstly, you need to calculate your Gross Total Income or the total income you receive per year. Just multiply your monthly salary by 12, and you would get your annual salary.
ii. The next step is to deduct the amount as per the standard deduction.
iii. Now, subtract the amount with the deductions, as mentioned in section 80C to 80U. Do this step only if they are applicable. Read the sections properly to know whether you need to do these steps or not.
iv. Next, you need to calculate the net income after all the deductions. This is the amount that is left after all the deduction and is applicable for paying taxes.
v. Calculate the amount of tax that you are paying as per the Income Tax Slabs.
vi. In this step, deduct the amount as stated in section 87A from your salary.
vii. Now calculate the amount of health and education cess payable at 4% from your tax payable amount.
If, after all the steps, your tax amount is INR 12,500 or less than that, then you can easily apply for the tax rebate under section 87A.
Claiming For Tax Rebate Under Section 87A
If, after all the calculation, you find yourself eligible for a tax rebate under section 87A, then you can claim for it. While you are filing for your tax return, you can even claim a tax rebate under this particular section.
However, there are certain dates on which you can claim the rebate. The last date to claim for a tax rebate under section 87A is 31st July every year for individuals. As the financial year is from 1st April to 31st March, it gives you 4 months to file your tax returns and claim the rebate. You can file for this by going to the Income Tax department and get the process done.
Tax Rebate Limit Under Section 87A
It is important to know the tax rebate’s limits under section 87A before applying for a claim. Previously, the limit for individuals was INR 2500, for an income of INR 3.5 lakh. This was the situation back in 2017-18.
However, in the revised section of 87A, the limit is now INR 12,500 for individuals with an INR 5 lakh income. It means that if your net tax payable amount is INR 12,500 or below it, then you can file a claim for tax rebate under the section of 87A FY 2019-2020/ FAY 2020-21.
Difference Between Tax Rebate, Tax Exemption & Tax Deduction
The terms tax rebate, tax exemption, and tax deduction may sound similar and are not the same. Here is the difference between these 3 terms
Tax deductions are the amount that is deducted from the Gross Total Income. This is the amount that is not eligible to use as taxes. However, the taxpayer can use this amount to pay the tax bills. The standard deduction is fixed for everyone. Previously, it was INR 40,000, but after revising the act, it is increased to INR 50,000. However, the standard deduction will vary based on the salary of the person.
Tax exemption is the amount that one can claim from a specific income source and not from the GTI or Gross Total Income. This amount is not included in your GTI; it is the amount you get from your salary. It is the amount that you do not get to pay for taxes.
Tax rebate is the amount an individual can get in return if he/she has a tax payable amount of INR 12,500 or less. This specific amount is the amount, which you can claim if you are eligible for it.
If you find yourself eligible for claiming a tax rebate, then all you have to do is file your income tax files and claim for the rebate along with the details. Tax rebate is done to ensure that individuals will meager salaries are spared from the burden of paying huge taxes and using the amount for their own betterment.