Loading page
All-in-one HR platform · v2.0
14-day free trial · No credit cardhello@HrMagix.com
All-in-one HR platform · v2.0
14-day free trial · No credit cardhello@HrMagix.com
A rebate under Section 87A of the Income-tax Act that reduces the tax payable by a resident individual whose total income is within a set limit, in many cases to nil. The income limit and the maximum rebate differ by regime and are revised in Finance Acts, so payroll must apply the figures for the year in question when projecting TDS.
Payroll meets the rebate when projecting TDS for employees whose projected income sits close to the limit for their chosen regime. If the projection falls under the limit, the computed tax drops, often to nil, and no TDS is deducted that month.
The difficulty is that payroll sees only salary. As an example, an employee projected just below the limit on salary alone gets no TDS all year, then earns interest or capital gains outside work, crosses the limit and loses the rebate entirely, with tax and possibly interest falling due when the return is filed.
Two practical habits help. Re-run the projection after any increment, arrear or bonus, because a single payout can move an employee over the limit and make the remaining months' TDS jump. And tell affected employees in writing that the rebate in payroll assumes no other income, so that they can declare other income or plan for it themselves.
Payroll projects the employee's taxable income for the year and, if it falls within the limit, reduces the computed tax by the rebate. The rebate cannot exceed the tax due.
Yes. The income limit and maximum rebate are different under the old and new regimes. The Finance Act sets both each year.
Resident individuals whose total income is within the limit for the regime they have chosen. Non-residents are not eligible.
If their total income from all sources, not just salary, crosses the limit, the rebate is lost. Some income taxed at special rates may also be treated differently, so check the current rules.
14-day free trial · Full access to all 12 modules · Zero implementation fee · Cancel anytime