The Indian government understands the growing importance of responsible financial planning, including reducing the burden on taxpayers. That’s why various tax benefits and rebates are offered throughout the year. Today, we’ll explore a rebate option to help you reduce your crypto tax liability to zero: Rebate under Section 87A.
However, before we discuss rebate 87A in detail, let’s understand the general concept of an income tax rebate. An income tax rebate lowers the tax you have to pay. Section 87A of the Income Tax Act provides eligibility criteria and guidelines for qualified taxpayers. When income exceeds a specific limit, the tax liability becomes zero.
The following blog will explain who is eligible for an income tax rebate under Section 87A and how to claim it.
Understanding Income Tax Rebate Under 87A
The income tax rebate under Section 87A began in 2013 to promote timely tax payments. This rebate reduces your tax liability to zero if your income falls below the threshold. It’s important to note that the rebate applies to the total tax amount before any Health and Education Cess is added.
With the introduction of tax rebates, the government has effortlessly made the system fairer for all. If your taxable income falls below the rebate threshold, your tax liability becomes zero. This means the tax rebate is 100% if the tax amount is below the threshold value.
However, if your taxable income exceeds the rebate threshold, you will not qualify. Hence, you must pay the total tax amount, ensuring a fair distribution of tax responsibilities.
The rebate encourages low-income earners to file tax returns without the concern of having to make tax payments. You don’t need to pay any tax if your owed tax amount is less than or equal to the rebate threshold. Additionally, the rebate threshold limit has been periodically increased over the years.
Here’s how the income tax rebate under Section 87A changed since its introduction in 2013 till the current financial year:
Financial Income | Limit of Total Taxable Income | Amount of Rebate allowed under 87A |
2013-14 | INR 5,00,000 | INR 2,000 |
2014-15 | INR 5,00,000 | INR 2,000 |
2015-16 | INR 5,00,000 | INR 2,000 |
2016-17 | INR 5,00,000 | INR 5,000 |
2017-18 | INR 5,00,000 | INR 2,500 |
2018-19 | INR 5,00,000 | INR 12,500 |
2019-20 | INR 5,00,000 | INR 12,500 |
2020-21 | INR 5,00,000 | INR 12,500 |
2021-22 | INR 5,00,000 | INR 12,500 |
2022-23 | INR 5,00,000 | INR 12,500 |
2023-24 | INR 7,00,000 (New Tax Regime)
INR 5,00,000 (Old Tax Regime) | INR 25,000 (New Regime) (Note: Rebate on crypto income not allowed) INR 12,500 (Old Regime) |
Tax Rebate Under Old Regime
If you are a crypto trader and want to file your income tax under the old tax regime for the financial year 2023-24 (AY 2024-25), here’s how a tax rebate under 87A will work for you:
Rebate Amount
For the financial year 2023-24, if you are annual income is less than INR 5,00,000, the rebate amount under Section 87A is structured as below:
- The maximum rebate available is INR 12,500.
- If the calculated capital gains tax payable is less than INR 12,500, the rebate will equal the tax amount, reducing the tax liability to zero.
- If the calculated capital gains tax payable is more than INR 12,500, you must pay the whole amount as income tax.
Example
Zakir is a pastime crypto trader with an annual income of less than INR 5,00,000. He earned a profit of INR 40,000 in FY 2023-24 from selling Bitcoin. Here’s how taxation will work on his income:
- Capital Gains Tax of 30%: INR 12,000 (30% of INR 40,000)
- 4% Cess on CGT: INR 480 (4% of INR 12,000)
- Total Taxable Amount: INR 12,480
Zakir chose the old tax regime to file his income tax and has an annual income lower than INR 5,00,000; therefore, he was awarded a rebate of INR 12,500.
His taxable amount is INR 12,480 before cess, which is lower than 12,500, so he will enjoy a 100% rebate, and his taxable amount will become INR 0.
Note: Under the New Tax Regime, a Rebate isn’t allowed on crypto income under section 87A.
So, if you wanna claim the rebate under section 87A on your crypto profits, file your ITR under the old tax regime.
Who Can Claim Rebate Under Section 87A?
You can claim the rebate under Section 87A for FY 2022-23 if the following conditions are met:
- You are a resident individual.
- After deductions under Chapter VI-A (such as Sections 80C, 80D, etc.), your total income is at most INR 5,00,000 in a financial year for the old tax regime.
- The tax rebate is capped at INR 12,500 for the old tax regime.
Additionally, the rebate is applied to your total tax before the 4% Health and Education Cess is added.
How To Claim Rebate Under Section 87A?
To calculate your eligibility for the rebate under Section 87A for Assessment Year 2024-25:
Calculate Gross Total Income (GTI): Calculate your total income from all sources before any deductions. This includes salary, business, rental, interest, etc.
Reduce Tax Deductions: You can deduct tax-saving investments and expenses eligible for deductions under Chapter VI-A of the Income Tax Act. Standard deductions include Section 80C (like investments in PPF, LIC, etc.), Section 80D (health insurance premiums), and others. For more details, you can check out our guide on how to save taxes.
Arrive at Total Income after Deductions: Subtract the total deductions from your Gross Total Income to arrive at your Total Income.
Declare Income and Deductions in ITR: While filing your Income Tax Return (ITR), accurately declare your Gross Total Income and the deductions claimed under relevant sections.
Claiming Rebate under Section 87A: Check your Total Income:
For the old tax regime (default regime), the Total Income threshold is INR 5,00,000, and the maximum rebate is INR 12,500.
Ensure you review the specific rules and thresholds applicable for claiming the rebate under Section 87A based on the regime you opt for while filing your ITR.
Conclusion
The income tax rebate under Section 87A relieves individual resident taxpayers and aims to significantly reduce the tax burden for low-income taxpayers.
If you want a rebate on crypto income, choose the old tax regime with an income limit of INR 5,00,000 and a rebate of INR 12,500.
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