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What is Income Tax Rebate u/s 87A?
Rebate u/s 87A provides benefit on tax payment to a RESIDENT INDIVIDUAL. The only condition to avail the benefit is
“Your total taxable income shall not exceed the threshold limit”
Only the taxpayers falling under the specified threshold limit can claim the benefit of rebate u/s 87A. For the Financial Year (FY) 2019-20 [Assessment Year (AY) 2020-21] this limit is Rs. 5,00,000. Which means anyone having total taxable income exceeding Rs. 5,00,000 will not be able to take tax benefit under Section 87A and for such cases tax would be calculated at normal rates.
Rebate u/s 87A for FY 2020-21 (AY 2021-22)
The amount of rebate u/s 87A for FY 2020-21 (AY 2021-22) has been kept unchanged under both old and new income tax regime. A resident individual having taxable income upto Rs 5,00,000 will get a tax rebate of Rs 12,500 or equal to the amount of tax payable (whichever is lower).
How much is the rebate allowed u/s 87A?
If an individual’s total taxable income is upto Rs. 5 lakhs then he will get the tax benefit of
- Rs. 12,500 or
- The amount of tax payable
- (whichever is lower)
What is Total Taxable Income for Claiming rebate u/s 87A?
Total Taxable Income for the purpose of claiming rebate u/s 87A shall be your:
Gross Total Income
Less: Deduction u/s 80C to 80U
Example to understand the calculation of Total Taxable Income for rebate u/s 87A
Mr. Virat, a resident individual, aged 28 years, has
| Total Income | Rs. 5,75,000 |
|---|---|
| Investments made u/s 80C | Rs. 1,50,000 |
| Medical policy taken u/s 80D | Rs. 25,000 |
What will be the total taxable Income of Mr. Virat for Assessment Year 2020-21.
Solution: Total Taxable Income of Mr. Virat will be
| Total Income | Rs. 5,75,000 |
|---|---|
| Less : Investments made u/s 80C | Rs. 1,50,000 |
| Less : Medical policy taken u/s 80D | Rs. 25,000 |
| Total Taxable Income (TTI) | Rs 4,00,000 |
Since, his TTI is below the threshold of Rs. 5 lakhs, hence taxpayer Mr. Virat is eligible for claiming rebate u/s 87A.
How to calculate rebate u/s 87A?
TThe sequential steps involved in the calculation of rebate u/s 87A are
- Calculate your Gross Total Income(GTI).
- Reduce the deductions under sections 80C to 80U.
- Calculate your Tax Payable as per Income Tax slabs.
- Deduct the amount of rebate allowed.
- On your balance tax payable (if any) calculate the amount of Health and Education Cess payable @ 4%.
Rebate granted under section 87A will depend upon your taxes payable for the FY 2020-21 (AY 2021-22). As under:
| Tax Payable | Rebate u/s 87A |
|---|---|
| Less than Rs. 12,500 | Equal to the tax amount payable |
| Exactly Rs. 12,500 | Rs. 12,500 |
| More than Rs. 12,500 | NIL |
Suppose the Total Taxable Income of Mr. Virat is
A) Rs. 4 Lakhs
B) Rs.5 Lakhs
C) Rs. 6 Lakhs
| Particulars | Amount | Amount | Amount |
|---|---|---|---|
| Total Taxable Income | 4,00,000 | 5,00,000 | 6,00,000 |
| Less: Basic Exemption Limit | 2,50,000 | 2,50,000 | 2,50,000 |
| Taxable Income after Basic exemption limit | 1,50,000 | 2,50,000 | 3,50,000 |
| Tax Payable | 7,500 | 12,500 | 32,500 |
| Less: Rebate under section 87A Lower of 1) Tax Payable or 2) Rs 12,500 |
7,500 | 12,500 | NIL* |
| Balance Tax Payable | NIL | NIL | 32,500 |
| Add : Health & Education Cess @ 4% | - | - | 1,300 |
| Final Tax payable | - | - | 33,800 |
The benefit of rebate u/s 87A is not available because total taxable income exceeds Rs 5,00,000
How do I claim rebate from Section 87A?
The income tax rebate under section 87A will be automatically claimed at the time of filing your Income Tax Return. The only condition is that your (resident individual) taxable income shall be upto Rs. 5,00,000.
Rebate u/s 87A for FY 2019-20 (AY 2020-21)
Income tax rebate u/s 87A is the same for the FY 2020-21 AY (2021-22) & FY 2019-20 AY (2020-21). As per section 87A, if a resident individual’s taxable income is upto Rs. 3.5 lakhs then he will get the benefit of Rs. 2500 or the amount of tax whichever is lower.
Example to explain calculation of rebate of section 87A for FY 2020-21 (AY 2021-22)
Let us understand this with the help of an example discussed above.
Example to explain the rebate of Section 87A
The TTI of Mr.Virat was computed to be Rs. 3.45 lakhs. Now lets see how to calculate his rebate amount-
| Total Taxable Income | 3,45,000 |
| Less : Basic Exemption Limit | 2,50,000 |
| Taxable Income | 95,000 |
| Tax Payable @5% | 4,750 |
| Less : Relief under section 87A, Lower of 1) Tax amount 2) Rs 2500 |
2,500 |
| Balance Tax Payable | 2,250 |
| Add : Health & Education Cess @4% | 90 |
| Final Tax payable | 2340 |
Rebate u/s 87A for Previous Years
The rebate u/s 87A was announced by the Government of India from the Financial Year 2013-14. Since then the limits have witnessed many changes as under
| Financial Year | Limit on Total Taxable Income | Amount of rebate allowed u/s 87A* |
|---|---|---|
| 2019-20 | Rs. 5,00,000 | Rs. 12,500 |
| 2018-19 | Rs. 3,50,000 | Rs. 2,500 |
| 2017-18 | Rs. 3,50,000 | Rs. 2,500 |
| 2016-17 | Rs. 5,00,000 | Rs. 5,000 |
| 2015-16 | Rs. 5,00,000 | Rs. 2,000 |
| 2014-15 | Rs. 5,00,000 | Rs. 2,000 |
| 2013-14 | Rs. 5,00,000 | Rs. 2,000 |
* Amount of rebate allowed u/s 87A shall be lower of limits specified above or the amount of tax payable.
Conclusion: Rebate u/s 87A emerged with a motive to provide relief to the taxpayers covered in the lowest tax bracket. The inception of this section equipped the government with providing direct benefit to the required section without a reduction in overall tax rates. And the evidence of the same can be traced in the frequently changing limits of 87A.
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FAQs on rebate u/s 87 A
Q - Can NRI claim rebate u/s 87A?
No, the benefit of rebate u/s 87A is not available to Non-Resident Indians (NRI’s)
Q - Is rebate u/s 87A available to HUF or its members?
Only the members of HUF can claim rebate u/s 87A in their individual capacities as a resident of India. But, no rebate shall be allowed to HUF.
Q - Can my father being a Senior Citizen claim rebate u/s 87A?
Yes, he can validly claim rebate u/s 87A. He is a Resident Individual and all Resident Individuals can definitely claim rebate u/s 87A if their total taxable income is upto Rs. 5 lakhs. Learn how, with the help of example below :
| Total Taxable Income | 5,00,000 |
| Less : Basic Exemption Limit (For Senior citizen) | 3,00,000 |
| Taxable Income | 2,00,000 |
| Tax Payable | 10,000 |
| Less : Relief under section 87A, lower of 1) Tax amount 2) Rs 12,500 |
10,000 |
| Add : Health & Education Cess @4% | 0 |
| Final Tax payable | 0 |
Q Will my exempt income like interest earned from PPF account, be added back to calculate rebate u/s 87A?
For the purpose of calculating rebate u/s 87A no special adjustments are required to be made. Hence, taxable income will be computed in the usual manner and exempt income like PPF interest earned shall not be added back.
Q - How to claim rebate u/s 87A while filing my ITR with File My Tax online?
Every year you have to worry about a lot of things like paying taxes, availing exemptions and filing ITR. Finally it's your time to take a break and rest!! While filing your income tax return with File My Tax online you need not worry about claiming rebate u/s 87A. Our software automatically allows you the benefit with 100% accuracy.
Q - Whether Surcharge will apply in calculating rebate u/s 87A?
A person claiming rebate u/s 87A will never attract a levy of surcharge . Rebate under this section is allowed to a resident individual having total taxable income maximum upto Rs. 5 lakhs. Whereas, surcharge @ 10% is triggered if the total income of an individual exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore. Since the TTI of a person claiming rebate will never exceed Rs. 5 lakhs he will never attract surcharge while claiming rebate u/s 87A.
Q - What is the difference between Relief u/s 89 and rebate u/s 87A?
Ans: Apart from what their name suggests one is a Relief and other is rebate, there are numerous differences among sections 89 and 87A. The better understanding of which could be drawn with the help table below
| Rebate u/s 87A | Relief u/s 89 |
|---|---|
| Applies to income earned from all heads of Income | Applies only to Income under the head salaries |
| No separate form is required to be filled | For claiming the relief individual is required to fill form 10E |
| Health & Education Cess is levied after allowing rebate u/s 87A | Health & Education Cess is levied before Relief u/s 89 is provided. |
| Surcharge can never apply in this case | Surcharge may be attracted |
| Rebate is granted to each resident individual upto a maximum prescribed rate of Rs 2,500 for FY 2017-18, FY 2018-19 and Rs.12,500 for FY 2019-20 | No such standard predefined limit prevails in case of Relief u/s 89 of the Income Tax Act |
| For claiming rebate u/s 87A a threshold is described for Total Taxable Income | There is no threshold on Total Taxable Income of the assessee |
| Rebate is accorded for current year income | Relief is related to past year income received in current year |
| A calculation of past year taxes is not required for claiming rebate in the current year | Relief in current year is sought upon tax calculation of previous years |
| A resident individual is entitled to rebate at the time of filing his income tax return for the relevant year | An individual is entitled to Relief when he files both his income tax return and Form 10E. |
From the above comparative study we can successfully infer that rebate u/s 87A and Relief u/s 89 are two completely distinguished provisions made under the same Act.
Q - What is the income tax exemption limit for calculation of income tax rebate under section 87A?
For the purpose of the calculation of Sec 87A, the income tax exemption limit shall be the same as basic exemption limit. Currently this limit stands at Rs. 2,50,000. However if your total income is upto Rs. 5,00,000 then you are entitled to get the benefit of tax rebate u/s 87A of Rs. 12,500 or 100% of tax amount whichever is lower
Q - What is the difference between income tax rebate and income tax deductions?
Following are the differences between income tax rebate and income tax deduction
| Income Tax Rebate | Income Tax Deductions |
|---|---|
| Allowed without any investment | Normally available for the amount invested |
| Taxable income should be up to the limit specified | No restriction on taxable income |
| Cannot be claimed by NRI and HUF | Eligible deductions can be claimed by HUF and NRI as well |
| Rebate u/s 87A is deducted from tax payable | Deductions are reduced from income and not the tax amount |
Q - Is income tax rebate u/s 87A available on Long Term Capital Gains (LTCG)?
Rebate u/s 87A is not available on sale or transfer of equity shares i.e. on Long Term Capital Gains from equity or others as specified under section 112A. It is available on all other capital gains.
Q - Is rebate u/s 87A available on agricultural income?
Yes, income tax rebate u/s 87A is available on taxable income which includes agricultural incomes as well.
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