Tax filing can often seem like a daunting task with its various slabs and exemptions. That’s where tax planning steps in as a crucial tool that can help you to reduce your tax liability. Among the many options available under the Income Tax Act, one stands out as a potential money-saver for taxpayers: the tax rebate under 87A. Here is a guide to understand income tax rebate and calculate in simple steps
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What Is Income Tax Rebate?
A tax rebate is getting a refund of taxes when an individual’s tax liability is less than what they’ve paid the government refunds it – if your tax liability falls within the rebate limit, you can expect a full refund of the tax amount. This refund can be claimed by leveraging Section 87A of the Income Tax Act.
Read More: What are the changes in the New Income Tax Return forms for FY2023-24?
Who Can Claim Rebate Under Section 87A?
Individual taxpayers can claim a rebate under Section 87A if their total taxable income is within Rs 5 lakh (for the old tax regime) or Rs 7 lakh (for the new tax regime) for the fiscal year 2023-24. This means that if your total taxable income exceeds this rebate limit, you won’t be able to claim the tax benefit under section 87A. It’s worth noting that only resident Indians can avail themselves of this rebate.
Step-By-Step Guide To Calculate Tax Rebate Under 87A
Step 1: Calculate Gross Income
Determine your gross income for the year.
Step 2. Deduct All Allowable Deductions
Subtract all deductions like standard deductions and tax savings.
Step 3: Declare Income After Deductions
Clearly state your income after accounting for deductions in the Income Tax Return (ITR).
Step 4: Claim Rebate Under Section 87A
If your total income doesn’t exceed Rs 5 lakh, you can claim a tax rebate under section 87A.
It’s important to keep in mind that the maximum rebate under section 87A for the Assessment Year 2022-23 is capped at Rs 12,500. By following these simple steps, taxpayers can potentially save on their tax outgo and make the filing process a little less intimidating. It is advised to consult your financial advisor accordingly to meet your individual financial goals.
