Being a citizen of the country, there are a few duties that you are expected off. One of which is paying liable income taxes on the income that you earn in the country. India follows a progressive income tax model, which increases your liable taxes with an increase in the annual income. In other words, you will end up paying more taxes as you see constant growth in your career. 

And to ensure that the rules and regulations remain impartial, the government follows the Income Tax Act of 1961. Though the Act first came into existence in the year 1961, it has seen several amendments over the years to keep up with the times. It governs the income taxes in the country and ensures that all the responsible parties adhere to it.

Anyone who follows the budget or even the news keenly would have come across the term rebate or rebate under Section 87A. If you haven’t, here is all that you need to be aware of.

Section 87A Rebate

During the interim budget declared in February 2019, the then finance minister Mr. Piyush Goyal announced the government’s proposal that people with income up to INR 5,00,000 will not have to pay any taxes. And this would be possible with the help of tax rebates.

The proposed modification to the Income Tax Act would make sure that taxpayers, whose net taxable income is up to INR 5,00,000 don’t have to pay any income tax. To allow for this to happen, an existing section, 87A was updated in the Income Tax Act.

Section 87A was introduced for the first time in 2013, allowing taxpayers to avail rebate if their net taxable income was below the threshold levels. 

What is an income-tax rebate? As per the amendments to Section 87A, if your annual taxable income is INR 5,00,000 or lower, you can avail the tax rebate. The existing laws made way for a 2,500 income tax rebate. However, the updated law ensured that the limit was increased to a 12,500 income tax rebate.

But it is crucial to understand that this rebate holds good only for taxpayers whose annual taxable income is below the threshold limit. If you exceed the limit, you cannot avail any rebates. Here are the eligibility criteria for availing the tax rebate.

• The rebate is designed only for individual taxpayers. If you belong to a HUF or firm or company, you cannot avail this rebate.
• There are no restrictions based on gender for this section, meaning men and women can both avail the benefits.
• Net taxable income of an individual should not exceed INR 5,00,000 for the FY 2019-2020.
• The laws make way for a maximum rebate of INR 12,500 under this section. In other words, if the taxes that you are liable to pay are INR 12,500 or less, you can avail the rebate.

Difference Over Previous year

Income tax rebate under Section 87A has changed a bit over the years. Section 87A rebate FY 2018-19 is considerably different from Section 87A rebate FY 2019-20. Section 87A made way for a rebate for income under 3,50,000 during the FY 2018-2019. This meant that individuals whose tax liability was INR 2,500 or lower did not have to pay any taxes.

However, the rebate would no longer hold good if the tax liability exceeded INR 2,500 or the annual taxable income of an individual was above INR 3,50,000. However, for the FY 2019-2020, the rebate limit has been revised from INR 2,500 to INR 12,500.

This revised rebate limit ensures that individuals whose net taxable income does not exceed INR 5,00,000 do not have to pay any taxes to the government. Though they are not liable to pay any taxes, this does not exempt them from filing their tax returns. In fact, without tax returns some individuals might not even avail these benefits.

If you are a salaried individual, most probably your employer would be deducting taxes at source. Consider this example, your current annual income is INR 6,50,000. This salary qualifies you pay taxes on your income. 

This means that your employer would first deduct taxes from your income before handing crediting the same to your account. Once you take into consideration various deductions, your net taxable income might become less than INR 5,00,000. For such cases, you would need to file your income tax return to get refund of the taxes that your employer has deducted.

An individual who is resident in India and whose total income does not exceed Rs. 3,50,000 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 87A will be lower of 100% of income-tax liability or Rs. 2,500. In other words, if the tax liability exceeds Rs. 2,500, rebate will be available to the extent of Rs. 2,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 3,50,000.

The revision to Section 87A is welcome good news for taxpayers. Though it must be noted that individuals whose net taxable income is less than INR 5,00,000 would benefit the most from it. Instead of a rebate, if the same were a flat tax, all the taxpayers would have benefited from the same. Including individuals who taxable income exceeds INR 5,00,000.

At the end of the tax calculation, taxpayers must pay the mandatory Health and Education cess. This is applicable for all the taxpayers and is not limited to any exemptions. And the cess is merely a percentage of your payable taxes. Thus, the amount would vary from taxpayer to taxpayer.

However, if you avail the income tax rebate under Section 87A, your tax liability becomes zero. Since Health and Education cess is calculated based on your liable taxes, it also becomes zero. Likewise, you are exempted from paying the health and education cess as well. To verify if you qualify for the rebate, you can refer to the qualification criteria above and check your net taxable income. 

In any case, it is recommended to file your tax return. You can claim for any refunds if your employer has deducted taxes at source.

FAQs

1. Can I avail the tax rebate?
   As long as you meet the eligibility criteria mentioned above, you can claim the tax rebate.
   
   
2. Can an NRI avail the tax rebate?
   No. This tax rebate clause is strictly applicable to residents. Any non-residents cannot claim tax rebate under Section 87A.
   
   
3. What if I have already paid taxes?
   In the event that you have already paid taxes and qualify for tax rebate under Section 87A, you can claim for a refund during your tax return filing.
   
   
4. How can I file for the rebate?
   When you file your tax return, you can take advantage of tax rebate under Section 87A.