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Rebate Under Section 87-A and Income Tax On Gains From Shares: Here's Everything You Need To Know

Updated on: 10 Aug, 2023 04:10 PM

Every citizen of the country benefits from tax planning because it allows for savings and at the same time, boosts the country's development. The Income Tax Act of 1961 was created to allow citizens to manage their taxes and claim deductions. There are numerous rules and sections for citizens that help them plan their taxes. Section 87-A is one of the major tax amendments that has been in the spotlight since its inception. Taxpayers get tax relief when they obtain rebate available under section 87-A.

Section 87-A: An Introduction

Section 87A rebate is an income tax provision that allows taxpayers to lower their tax liability. It allows you to claim the refund if your yearly income does not exceed Rs 5,00,000. Your income tax burden is reduced to zero as a result of collecting this refund.

Initially, the highest tax rebate under Section 87A of the Income Tax Act was 2,000. It was raised to 5,000 in the 2016 Union Budget. Further, it was again increased by 2,500 in the Union Budget of 2017, for people with a net taxable income of up to INR 5 Lakhs.

Following the 2019 Union Budget, the government raised the net taxable income to 5 lakhs. The maximum 87A rebate amount has now been increased to Rs 12,500.

Section 87-A: An Introduction

Who is Eligible for the Rebate?

  • The rebate can only be claimed by individuals.
  • This reimbursement is not available to corporations, partnerships, or Hindu Undivided Families.
  • In a financial year, an individual’s total taxable income should not exceed Rs. 5 Lakhs.
  • The person must be an Indian and must reside in India.
  • A person’s age should not exceed 80.

Gains from Shares or Stocks and Rebate under 87-A

There is a misconception that the rebate can be claimed on the income earned from any source after claiming all the exemptions and deduction does not exceed 5 lakhs. However, the truth is that the rebate under Section 87A can be claimed against any tax liability except for long term capital gains.

If the capital gains on equity are more than 1 Lakh rupees, then the tax must be paid on the gains earned for the remaining amount above 1 lakh.

To put this in simpler terms, if your total income is below 5 lakh after all the deductions but you have earned 1.5 Lakh as long term capital gain then you will be liable to pay tax on 50,000 rupees, on which credit under 87A will not be available.

On the other hand, if you earn below 1 lakh as long term capital gain and your total income after deductions and exemptions is below 5 lakh then your tax liability will become zero.

If the gains are short term capital gains, then the rebate can be earned to the maximum permissible limit of 12,500 rs.

More: You may read the details about section 87-A here.

How to Claim rebate under Section 87-A?

The rebate under the said section can be obtained while filing income tax returns.

Disclaimer: This blog is only for educational purposes and should not be construed as professional advice. You should get independent advice on all of your financial and tax problems.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.