Tax Rebate for Small Taxpayers
Rebate…. everyone likes it!
Whether it’s shopping or taxes, every person will certainly cherish the rebates. If you are a taxpayer and intend to get a tax rebate, this article is perfect for you. Do you know that you can reduce your tax liability to Zero if you are a small taxpayer? Yaa, it’s also true that you cannot escape your responsibility of filing your income tax return timely.
How you will get tax rebate?
Section 87A of the Income Tax Act, 1961 is the answer to this question. From the Assessment Year 2020-21 (Financial Year 2019-20), the Indian Government announced a tax rebate under this section to the individual taxpayers having annual income less than Rs. 5 lakhs. So, if you are having less than Rs. 5 Lakhs, you need not pay any income tax.
But, it’s not so easy as you think. There is a big confusion in this regard. People think that they need not pay any tax up to an income of Rs. 5 Lakhs and tax is payable on income earned beyond Rs. 5 Lakhs. In this regard, please note that the tax rebate under section 87A is available to only those individual taxpayers who are having income not more than Rs. 5 Lakhs.
Please mind that the rebate from tax is only for small taxpayers. As soon as the income of an individual crosses Rs. 5 Lakhs, the tax rebate vanishes and he is liable to pay tax on income earned above the threshold limit of Rs. 2,50,000 and up to Rs. 5 Lakhs at the rate of 5%. Thus, if your income crosses Rs. 5 lakhs limit, you should be ready to shed extra Rs. 12,500 tax plus surcharge & cess @ 4%.
If your total income is somewhere around Rs. 5 Lakhs to Rs. 7 Lakhs, you can plan smartly and bring down your tax liability to Zero. The Government allows tax benefits in respect of interest on housing loans, section 80C deductions against life insurance, PPF, NSC, school fees, section 80D deductions against medical insurance premium, and many more deductions. These deductions will help you bring down your taxable income below Rs. 5 Lakhs. Now, it’s time to answer your questions relating to the tax rebate under section 87A. Read carefully:
Who is eligible for section 87A rebate?
Only Individual taxpayers are eligible to avail of the tax rebate allowed under section 87A.
Can NRI claim a rebate under section 87A?
Section 87A allows the benefit of tax rebate only to those individual taxpayers who are residents in India. Therefore, if you are a non-resident, you are not eligible to get a tax rebate under section 87A.
How to claim rebate u/s 87A?
Tax rebate u/s 87A can be claimed only at the time of filing the income tax return. While filing the income tax return, if the total income calculated after deductions is below Rs. 5 Lakhs, you will get an instant tax rebate of Rs. 12,500. Even if any TDS has been deducted from your income, you will get the refund of the TDS in your bank account in a few days as soon as your return is processed.
What is the amount of rebate under section 87A?
The maximum amount of tax rebate under section 87A is Rs. 12,500 for Assessment Year 2020-21 and onwards.
How to calculate rebate under section 87A?
Section 87A provides a tax rebate only for small taxpayers if their total income is not more than Rs. 5 Lakhs. For calculating the eligibility for tax rebate follows the following steps:
- First calculate your Gross Total Income by considering income from all the sources namely salary, rental income, business income, other income like interest or dividend, etc.
- Deduct Deductions under section 80C to 80U from the Gross Total Income
- The result is called “Total Income”.
- If your “Total Income” does not exceed Rs. 5 Lakhs, sit relaxed as you need not pay any tax. You will enjoy the tax rebate u/s 87A.
- But if your total income is more than Rs. 5 Lakhs, then no rebate can be claimed.
Examples for Rebate calculation
|
Name of taxpayer |
Gross Total Income |
Eligible Deductions |
Total Income |
Tax on Total Income |
Eligible Tax Rebate |
Tax Payable |
|
A |
3,25,000 |
1,80,000 |
1,45,000 |
Nil |
Nil |
Nil |
|
B |
3,90,000 |
1,60,000 |
2,30,000 |
Nil |
Nil |
Nil |
|
C |
4,30,000 |
1,50,000 |
2,80,000 |
1,500 |
1,500 |
Nil |
|
D |
4,80,000 |
1,60,000 |
3,20,000 |
3,500 |
3,500 |
Nil |
|
E |
5,70,000 |
1,60,000 |
4,10,000 |
8,000 |
8,000 |
Nil |
|
F |
6,50,000 |
1,60,000 |
4,90,000 |
12,000 |
12,000 |
Nil |
|
G |
6,80,000 |
1,60,000 |
5,20,000 |
16,500 |
Nil |
16,500 |
|
H |
11,90,000 |
1,60,000 |
10,30,000 |
1,21,500 |
Nil |
1,21,500 |
Note: Tax payable will be subject to surcharge & cess also.
