Section 87A income tax rebate is not available on these incomes This tax rebate makes one's income tax liability zero. But certain transactions are taxed at a specific rate and are hence not allowed for section 87A tax rebate
An individual is eligible for a tax rebate under section 87A of the Income Tax Act, 1961, if their taxable income is below Rs 5 lakh in FY 2022-23 (AY 2023-24). Rs 12,500 is the maximum amount of income tax rebate that is available in both the tax regimes - old as well as new. However, an individual cannot claim this tax rebate for all incomes.Read on to know the list of incomes on which this tax rebate is not available.
Incomes not eligible for tax rebate under section 87A
Tax rebate under section 87A is not available if an individual has long term capital gains from equity shares, equity mutual funds and certain specified incomes. LTCG from equity shares and equity mutual funds:“If an individual’s total income includes any Long-term Capital Gain (LTCG) under section 112A from sale of listed equity shares or units of an equity mutual funds, rebate under Section 87A is not allowed on the tax payable arising on such long term capital gain,” said Sanjoli Maheshwari, Executive Director, Nangia Andersen India, a business consultancy company.
Section 112A states that LTCG arising from sale of equity shares or equity mutual funds will be taxable at 10% if it exceeds Rs 1 lakh in a financial year. LTCG up to Rs 1 lakh is exempted from tax.
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If an individual's taxable income is eligible for tax rebate under section 87A, but he has income by way of LTCG from equity mutual funds or listed equity shares, special rate of tax @10% will be payable on such LTCG by the individual, without considering rebate u/s 87A on such tax payable. Maheshwari explains this with an example.
For instance, an individual has net taxable salary is Rs 3.3 lakh a year and LTCG from sale of an equity mutual fund is Rs 1.10 lakh. Here, an individual is liable to pay tax at 10% on such LTCG of Rs 10,000 along with cess @ 4% totalling to INR 1,040. Further, considering the tax payable on net taxable salary income being Rs 4,000 less than the threshold provided in terms of Section 87A, therefore, the entire amount of tax on such salary income would be eligible for rebate/s 87A and thus, the individual would be required to pay only tax arising on such LTCG of Rs 1,040 as explained above.
Special incomes: There are certain incomes which are taxed at specific rates instead of income tax slabs. “Winnings from gambling, virtual digital assets (VDA), online gaming, lotteries, game shows or betting are not eligible for tax rebate under Section 87A. This income will be taxed at a flat rate of 30% along with cess and surcharge (if applicable),” said Ankit Jain, Partner, Ved Jain & Associates.
Who can and cannot claim section 87A tax rebate
As per income tax laws, an individual can claim the income tax rebate under section 87A if: You Might Also Like:
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He/she is an Indian resident individual.After claiming deductions such as sections 80C, 80D, etc., total income does not exceed Rs 5 lakh in FY 2022-23.“As per the Income tax act, the tax rebate under Section 87A is available to only resident individuals. Hence, non-resident individuals (NRIs), not ordinarily resident individuals (NOR) and Hindu Undivided Families (HUF) are not eligible for the rebate under section 87A,” said Maheshwari.
How to claim 87A tax rebate?
An individual is required to file an income tax return (ITR) to claim tax rebate under Section 87A. The tax rebate is not available on an automatic basis.Under the income tax laws, ITR filing is mandatory if total taxable income exceeds the basic exemption limit in a financial year and under specific cases (TDS exceeds Rs 25,000 in a financial year, spent Rs 2 lakh or more on foreign travel etc.) as mentioned in Section 139 of the Income Tax Act.
For FY 2022-23 (AY 2023-24), the basic exemption limit will depend on the age of an individual if he opts for the old tax regime.
For individuals below 60 years, the basic exemption limit is Rs 2.5 lakh, for those above 60 years but below 80 years of age, the exemption limit is Rs 3 lakh and for individuals whose age exceeds 80 years, the exemption limit is Rs 5 lakh in a financial year. However, if an individual opts for the new tax regime while filing ITR for FY 2022-23, basic exemption limit of Rs 2.5 lakh is applicable irrespective of the age.
From the current financial year FY 2023-24, the income tax slabs and tax rebate under section 87A has been revised under the new tax regime.The basic exemption limit has been hiked to Rs 3 lakh in new tax regime in Budget 2023. Further, tax rebate under section 87A will be applicable for taxable incomes up to Rs 7 lakh. However, the new tax rules will be applicable for incomes earned on or after April 1, 2023.
Also Read: New income tax slabs under new tax regime for FY 2023-24.
What if you have other capital gains
As stated above, LTCG from equity shares and equity mutual funds are not eligible for section 87A income tax rebate. However, it may happen that an individual has capital gains from other assets like real estate, unlisted shares or has short term capital gains (STCG) from equity shares, equity mutual funds.According to Dr Suresh Surana, Founder, RSM India - a tax, audit and consultancy company, “Rebate under section 87A can be claimed against capital gains arising from any assets other than those mentioned under section 112A of the Income Tax Act.”
“LTCG from real estate, unlisted shares or any other assets would be eligible for 87A tax rebate. Further it can be claimed against STCG arising from sale of equity mutual funds or stocks, which would be taxable under section 111A of the Income Tax Act,” added Surana.
So, if you have LTCG from sale of land, unlisted shares, or any other capital asset, or STCG from sale of equity mutual fund or equity shares then you are eligible to claim rebate under section 87A.
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This story originally appeared on: India Times - Author:Faqs of Insurances
