SECTION 87A OF INCOME TAX ACT
Darling of the Middle Class
SECTION 87A OF THE INCOME TAX ACT
A popular income tax rebate among the Middle class
What is the SECTION 87A of the Income Tax act ?
section 87A of the Income Tax Act is a provision that allows certain taxpayers to reduce their tax liability. Here's a breakdown of the key aspects: rebate to resident individuals. Section 87A provides a tax rebate to resident individuals. This rebate is available to those whose net taxable income does not exceed a certain limit. The rebate amount is also capped. Essentially, it's a way for lower-income taxpayers to reduce their tax burden, potentially to zero.
SECTION 87A FOR FY 2024 -25 ( FY 2025-26 ) Reads:
87A. An assessee, being an individual resident in India, whose total income does not exceed 5,00,000 rupees, shall be entitled to a deduction, from the amount of income-tax on his total income with which he is chargeable for any assessment year, of an amount equal to 100 % of such income-tax or an amount of 12,500
21[Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income—
(a) does not exceed 7,00,000 rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of 25,000 rupees, whichever is less;
(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.]
CHANGES PROPOSED IN THE FINANCE BILL FOR FY 2025-26 ( AY 2026-27 )
ON 1st , February 2025 , The Finance Minister Ms Nirmala Sitharaman proposed following changes to Section 87A as part of the Union Budget 2025-26.
Increased Rebate Limit: The maximum rebate under Section 87A has been increased to ₹60,000.
Higher Income Limit: The income limit to be eligible for the rebate has been increased to ₹12 lakh. This means individuals with income up to ₹12 lakh can potentially pay zero tax.
No Rebate on Specific Incomes: The Budget 2025 clarifies that the rebate under Section 87A will not be available for certain types of income, including:
Capital gains
Lottery winnings
Horse race winnings
Any other income on which a special tax rate is applicable
EFFECTS OF CHANGES PROPOSED IN THE BUDGET 2025 :
If your income from regular sources like salary , pension , interest income ,and if your total income does not exceed Rs 12,00,000 ( Rs 12,75,000 including standard deduction ) , you are liable to pay ZERO TAX . It includes short term capital gains
If your income also consists of Long Term Capital gain and other special rated incomes like lottery, horse racing , those incomes are to be segregated and tax to be paid as per rules applicable to them . They will be out of the purview of section 87a . Regular income less than Rs 12 lakhs wlll get reabate under Section 87a .
If your income has only LTCG and other special rated incomes , you are not eligible for any rebate under section 87a in the Financial year 2025-26 even if your total income is less than Rs 12 lakhs .
CHANGES IN SECTION 87A PROPOSED IN THE FINANCE BILL 2025 :
( As presented to the Loksabha )
In section 87A of the Income-tax Act, with effect from the 1st April, 2026,––
(a) in first proviso,––
(i) in clause (a),–– (I) for the words “seven hundred thousand rupees”, the words “twelve hundred thousand rupees” shall be substituted; (II) for the words “twenty-five thousand rupees”, the words “sixty thousand rupees” shall be substituted;
(ii) in clause (b), for the words “seven hundred thousand rupees” at both the places where they occur, the words “twelve hundred thousand rupees” shall be substituted; (b) after the proviso, the following proviso shall be inserted, namely:–– “Provided further that the deduction under the first proviso, shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115BAC.”.
HISTORY OF SECTION 87A :
Section 87A of the Income Tax Act has evolved over the years to provide greater relief to taxpayers in lower income brackets. Here's a look at its history:
Early Years:
Introduction: Section 87A was introduced in the Finance Act of 2003.
Initial Rebate: Initially, the maximum rebate amount was ₹2,000. This provided some tax relief to eligible individuals.
Increased Rebate and Income Limit:
Gradual Increases: Over the years, the government has periodically increased the rebate amount and the income limit to make the provision more beneficial.
Key Changes: Some notable changes include:
Increase to ₹5,000 in 2016
Revision to ₹2,500 for income up to ₹3,50,000
Increase to ₹12,500 for income up to ₹5,00,000 in 2019
Objective of Section 87A :
The primary objective of Section 87A has always been to reduce the tax burden on individuals with lower incomes. By providing a rebate, the government aims to:
Increase disposable income: This allows individuals to have more money available for spending or saving.
Encourage tax compliance: By making the tax system more favorable for lower-income earners, it can incentivize more people to file their returns.
Important Considerations:
Amendments: Tax laws are subject to change, and Section 87A has been amended several times since its introduction.
Eligibility: It's crucial to check the latest eligibility criteria and rebate limits to ensure you can claim the benefit.