Rebate under section 87A of Income Tax Act, 1961

In India, tax planning has been one of the most worrisome factor for common individuals and corporates who are not well aware of the benefits available to them. However, government of India has given certain special benefits to Individuals for reducing their burden of taxes when the belong to a particular income level category. 

It is a common practice that individuals make vast and diverse kind of investments to save taxes on their income through various channels. But there is a kind of special benefit given to individuals where they get a rebate in tax amount without investing even a single rupee to avail this rebate. This comes with various certain mandatory conditions. 

What is rebate in income tax act? 
A rebate is a special benefit provided by government to individual taxpayers. This allows taxpayers to reduce their tax liability to certain extent. It is a reduction in the amount of tax payable by individuals. The amount of rebate one can claim varies depend upon the nature of investment or expenditure they incur. 

Rebate under Section 87A of Income Tax Act, 1961: 
Rebate under section 87A is available only to a “Resident Individual”. Any resident individual whose Total Income does not exceed Rs.5,00,000 is entitled to claim this deduction from the amount of income-tax. This deduction is available upto 100% of his tax liability which means if his total income is upto Rs.5,00,000 after claiming all the deductions available to him except the deduction under this section the his entire amount of income tax is reduced to Nil. 

However, this amount of tax rebate is restricted to Rs.12,500/-. This means any amount of tax on income upto Rs.5,00,000 is the amount of rebate one will receive or Rs.12,500, whichever is higher. 

The above mentioned explaination is with regards to the old regime of Income Tax Act. 

Rebate under section 87A of Income Tax Act, 1961 as per New Regime: 
Budget 2023 proposed several amendments with a view to make new tax regime more adaptable to all classes of persons. Income upto Rs.7,00,000 is the new limit to claim rebate under section 87A as per new tax regime. The amount of Rebate is increased to Rs.25,000 or actual tax amount on income upto Rs.7,00,000, whichever is higher. 

The deduction is available to resident individuals only in new tax regime as well. 

It is clear that the Tax rebate under section 87A is available to old tax regime as well as new tax regime. However, limits of income and tax rebates are still different for both the regimes. 

One has to keep in mind while preparing income tax returns that the rebate under section 87A is available to Resident individuals only and not even available to NRIs or HUFs. 

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