Insurance Basics

Income Tax Rebate - Everything You Need to Know About Section 87A

What is Section 80C?

Section 80 C is one of the most popular clauses in the Income Tax Act, 1961. The reason it is popular is because it lets one reduce his/her tax liability. Section 80 C allows only individual/HUF taxpayers to reduce their taxable income by claiming certain deductions on their gross income. These deductions can be in the form of investments or expenses. Investments could be life insurance premium payment, investment in equity linked savings scheme or investment in public provident fund, etc. Expenses could include tuition fee for children, home loan repayments, etc. The total permissible deduction under 80 C is Rs 1,50,000 cumulatively across categories or within a single category.

Income tax can be a challenging subject to comprehend. Hence, you may find a lot of people stressed and confused, especially during tax season, trying to make their way through this maze. And if you are one of them, don’t worry; you’ve got a lot of people sailing in the same boat.

While there are many tax consulting agencies and individual tax consultants, who can help you in filing your taxes, it is advisable to first understand it yourself. That way, not only do you learn about one of the most important things in the world, but you also end up saving a lot of money.

Income tax rebate is one of the most important chapters in the book called ‘Tax’. Wondering why? Well, because it equates tax as per the income brackets.

How to Get a Tax Rebate in Income Tax

Tax rebate depends on your taxable income . Under section 87A, claimable rebate is up to Rs 12,500. The important thing here is that taxable income is calculated not just on tax slab. Someone earning Rs 8 lakh can also claim a rebate. There are two possibilities for taxpayers (up to age 60) getting a rebate. One, where gross income is less than Rs 5 lakh. Here, just filing an ITR suffices. Second is where gross income is say Rs. 8 lakh but deductions under sections 80C, 80CCD etc make your taxable income fit for rebate. Mentioning these deductions in your returns is another way to get rebate.

How is Income Tax Rebate Calculated?

Only Resident Individual taxpayers can claim rebate u/s 87A. To calculate the rebate, first add up income from all your sources, like salary, house rent, capital gains , income from other sources etc,. This is your gross income. Now from your gross income, apply the deductions u/s 80 of the Income tax Act, 1961, as applicable. The amount after claiming all the deductions becomes your net taxable income. If your net taxable income is less than or equal to Rs 5 lakh, (applicable from A.Y 20-21), you are eligible to claim rebate under Section 87A. However, if it exceeds Rs 5 lakh, you pay tax as per the slab rate you fall in during that particular year.

Some of the key points of Section 87A, Income Tax Rebate are:

  1. Only Indian residents can avail this refund: You have to hold an Aadhar card and a birth certificate that proves your citizenship. This will allow you to file for a tax rebate under Section 87A. However, if you are a non-resident Indian, you cannot apply for a rebate under this section.
     
  2. Both men and women are eligible for rebates: Irrespective of your gender, you can apply for a rebate, as long as your income falls under the specified bracket.
     
  3. Rebate is applicable to those under a specific income: Individuals whose income does not exceed Rs. 3,50,000, are eligible to claim the rebate under section 87A. This rebate is limited to Rs. 2,500 and is applied before adding Education Cess, which is 3%. However, if you’re taxable income is between Rs. 3,50,000 and Rs. 5,00,000, you can claim a maximum rebate of Rs. 5,000
     
  4. Rebate benefit is not available to citizens above 60 years: Senior citizens who are above the age of 60 are not eligible to file for a tax rebate. However, the good news is that the income tax slab for AY 2018-19 has hiked the exemption limit for senior citizens from 10,000 to 50,000 per year.
     
  5. Only individuals can apply for rebate: This means that Hindu undivided families (HUFs), firms and companies cannot apply for a tax rebate under this section. Under Section 87A only a ‘person’ is eligible to apply for a tax rebate.

Many people try to avoid paying taxes by withholding their actual accrued income. This leads to severe consequences, including heavy fines and imprisonment. Hence, it is advisable for individuals to learn about taxes and file their due returns. The rules and regulations are amended every year keeping public interest in mind.

 

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