Rebate under section 87A of the Income Tax Act is a provision that helps taxpayers to reduce their tax liability.
Therefore, This section is available to the person whose income does not exceed Rs. 5 Lakhs. Above all, The tax liability of a person becomes nil if he claims a rebate under section 87A.
HOW TO CALCULATE TAX REBATE UNDER SECTION 87A
Step 1: Calculate your gross total income for the financial year.
Step 2: After that decrease your tax deduction for investment or tax savings etc.
Step 3: Get your total income after decreasing the tax deduction.
Step 4: File your income tax return which declares your gross total income.
Step 5: Claim rebate under section 87A if your total income is not exceeding Rs 5 Lakhs.
Step 6: Maximum limit for claiming a rebate for the financial year 2020-2021 is Rs 12,500.
ELIGIBILITY FOR CLAIMING REBATE UNDER SECTION 87A
The taxpayer person can claim a rebate if the following conditions are satisfied: If the person is a resident individual. In other words, If the persons’ total income does not exceed Rs 5 Lakhs after deducting all the deductions under Chapter VI-A. The maximum limit for claiming a rebate is Rs 12,500 and an important note is the rebate shall be claimed before adding health and educational cess.
RELIEF UNDER SECTION 89
WHAT IS RELIEF?
However, Income Tax Act provides a provision which is for the taxpayers who is receiving income from the past year in the current year. If anyone is receiving past years due in the current year then he will be worried that he will have to pay extra tax on such income so income tax provides relief under section 89(1) for such person. So basically, the taxpayer will not have to pay extra tax on such extra income which is delayed.
HOW TO CALCULATE TAX RELIEF UNDER SECTION 89(1)
You can calculate tax relief by the following steps:
Step 1: Firstly, calculate your tax payable which is on your total income which shall include your additional income which is received in a year and that will be shown in Part B of Form 16.
Step 2: Now calculate your tax payable on your total income but here your additional income shall be excluded so that you will get the amount of the income which is delayed. Now you have to decrease this amount from the total income, so the calculation will give you the exact amount of tax liability for the year if there were no arrears.
Step 3: Now calculate the differential amount from step 1 and step 2, this will give you the additional amount of tax liability that was due to delay.
Step 4: Now calculate the tax payable on the total income for the year to which the arrear income relates.
Step 5: After that calculate the tax payable on the total income for the year to which the arrear income relate which shall include arrear income.
Step 6: Calculate the differential amount from step 4 and step 5.
Step 7: Excess amount which is left after Step 3 and Step 6 will be your amount of relief under section 89(1). If your amount in step 6 is more than step 3 then you will not get any relief.
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