A report revealed that the number of individuals filing income tax return has grown at 62% from 2002-03 to 2018-19. On the other hand, the number of individuals paying income tax has only increased by 22%. This imparity in statistics indicates that most individuals do not showcase their actual taxable income primarily to avoid the burden of additional liability that they need to pay as income tax.
However, to mitigate this tendency and to encourage taxpayers to pay income tax, the government has introduced several income tax rebate facilities.
Among several sections dedicated to different tax rebates, section 87A of the Income Tax Act is a significant one for the sizeable deductions it offers to taxpayers.
Tax rebate under section 87A
The tax rebate under section 87A was initiated in 2013 and was in effect for several years since then. However, recently in 2019, this section has been updated. According to this provision, an individual whose taxable income is up to Rs. 5 lakh annually will receive a rebate in income tax of up to Rs.12,500. Furthermore, it also implies that individuals who earn an income below Rs.5 lakh per annum are exempted from paying any tax at all.
To generate revenue and to invest in the development of infrastructure, the government levies income tax on its citizens. Hence, individuals need to pay income tax on their taxable income every year. However, to lessen the burden of this tax liability and to ease such financial liability of borrowers, the government has introduced several schemes and sections that provide a considerable deduction on the tax payable. Section 87A is one of various such provisions.
Besides this, other ways to enjoy deductions apart from this income tax rebate is when availing a loan for house purchase, like a home loan. However, individuals must satisfy all criteria before availing such deductions when filing income tax return.
Such tax rebate provisions are applicable for various home loans as well. For instance, you can enjoy tax benefits on a joint home loan.
Eligibility for tax rebate under section 87A
Since the inclusion of section 87A in 2013, it has been modified several times till date. However, as per the recent provision to avail an income tax rebate under 87A, assesses need to fulfil specific eligibility criteria. Following are some of them.
- The taxpayer has to be a resident of India.
- Even after applying for the deductions (for instance, deductions applicable under section 80C), the total annual taxable income should not exceed Rs.5 lakh.
- The education cess of 4% will still be levied on the income tax after availing rebate under section 87A.
- This facility to receive a rebate in income tax under 87A is not applicable for a firm, corporation and a Hindu Undivided Family.
- Moreover, senior citizens with pre-defined taxable income can avail this facility. But, super senior citizens cannot avail it.
Individuals who are eligible for this income tax rebate can avail it while filing income tax return.
For taxpayers who are over-qualified for the income tax slab, holding several insurance policies, servicing different loans, etc. can help save on their tax liability. Hence, if you are planning to borrow funds to purchase a property, you should also know about saving tax when you take a home loan. Benefits like income tax rebate, deductions and exemptions can help save substantially every year if planned properly.
Like, availing a home loan can prove to be beneficial for a responsible taxpayer in the long run. One of the reasons behind it is the tax savings and other advantages offered by home loans today. It allows you to avail deductions for the amount paid towards interest component of the total loan liability.
Further, several reputed financial institutions in the country offer home loans of up to Rs. 3.5 crore with competitive interest rates and extended tenor.
They also provide pre-approved loan offers on several financial products like home loans, loans against property, etc. These offers make the process of financing quick and convenient. You can check your pre-approved loan offer instantly by entering your name and contact details.
Thus, by availing income tax rebate under section 87A and planning your finances in a way that allows maximum deduction can help save significantly each year. Easy availability of funding options like home loans has only made achieving the desired financing objective convenient.