Income Tax Rebate – For Beginners

INTRODUCTION:

To provide economic relief to taxpayers, the government brought about Section 87A in the Income Tax Act,1961, to help individual taxpayers reduce their tax liability, known as the income tax rebate. This tax rebate would allow you to save on your payable income tax. While filing your income tax return, you can benefit from saving your taxable income, which is understood as an income tax rebate or tax rebate. However, to claim this rebate, you have to find yourself eligible under Section 87A, and it is only after fulfilling the criteria laid therein, you can claim a tax rebate to save on your income. Hence, it is necessary to understand the requirements laid down in Section 87A before proceeding ahead to file such a claim.

CONDITIONS TO BE SATISFIED:

You have entitled to avail of this tax relief if you have met and satisfied the following conditions as below:

• Resident Individual: That tax rebate can be claimed if you are an individual resident taxpayer. It does not apply to a company, firm or HUF. That even applies to senior citizens above 60 years but 80 years of age.
• Total net taxable income:  It is to be kept in mind that while filing your ITR, your total annual taxable income should not exceed more than Rs. 5 lakhs. A taxpayer individual whose net income does not cross more than Rs. 5 lakhs can claim the benefit of a tax rebate. This threshold of Rs. 5 lakhs should be arrived at only after considering the total deductions that apply to you under Section 80. There are several kinds of deductions under Section 80C to 80 U.
• Tax rebate limit: The tax rebate limit is capped at Rs. 12,500. That means that if your total tax payable is more than Rs. 12,500—the rebate cannot be applied to you, and you cannot claim the benefit of this provision. The amount of refund as per FY 2021-22 is fixed at Rs. 12,500.

STEPS ON HOW TO CLAIM TAX REBATE UNDER SECTION 87A:

Once you have fulfilled the eligibility criteria mentioned under Section 87A, you can easily claim an income tax rebate under Section 87A. Here are the few steps you need to follow to claim a tax rebate:

• Step-1:  Firstly, calculate your total net income for the financial year. This amount should not cross more than Rs. 5 lakhs if you want to claim the benefit of a tax rebate.
• Step-2: While arriving at this total net income in Step-1, consider the reductions under Section 80 that apply to you and reduce them with your tax deductions.
• Step-3: After arriving at this total net income after calculating the total tax reductions, file an ITR declaring the total tax deductions and your gross income.
• Step-4:  After following through the above steps and ensuring that your total income does not cross more than Rs. 5 lakh, you can easily claim a rebate under Section 87A to get tax relief up to Rs. 12,500 as per AY 2021-2022. However, it is pertinent to note that this rebate shall be applied before adding health and education cess, which is 4%.

CONCLUSION:

Tax rebates encourage the individual taxpayers to make purchases and help provide relief to the taxpayers who fall under the tax slab of 10%, the lowest bracket of income. It aims to encourage individuals to make certain purchases that attract tax deductions and help save tax income tax payable. It is thus essential to understand the conditions required and the steps you need to take to receive the benefit of tax rebate.

Disclaimer

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose.