Income Tax Rebate Under Section 87A


(Last Updated On: February 2, 2019)

union budget 2019 amendment

Revised Tax Rebate under section 87A | Budget 2019 :
This rebate was first introduced with Finance Act 2013. Since then it has been a point of constant amendments. The recent amendment in the section has been introduced by the Interim Budget 2019. It has given the benefit of tax amount upto Rs 12,500 for small taxpayers having annual taxable income upto Rs 5,00,000 (Five Lakhs). It means if a person is having an income after all deductions ranging upto Rs 5,00,000 then he is required to pay No Tax. For better understanding refer the calculations below
 

Post Interim Budget 2019 [(FY 2019-20) (AY 2020-21)]

Particulars

Amount (Rs)

Annual Taxable Income

5,00,000

Less: Basic Exemption Limit

2,50,000

Tax Payable @ 5% on 2,50,000

12,500

Less: Rebate u/s 87A

12,500

Net Tax Payable*

NIL

 
But a point of caution here is that the benefit is available only if your income is upto Rs 5,00,000. And even in case your income exceeds partially say even by Rs 1 above five lakhs then this benefit cannot be availed by you and you would be required to make the complete tax payment as if Rebate under section 87A was not ever in existence. For eg

Post Interim Budget 2019 [(FY 2019-20) (AY 2020-21)]  

Particulars

Amount (Rs)

Annual Taxable Income

5,01,000

Less: Basic Exemption Limit

2,50,000

Tax Payable @ 5% on 2,50,000 and @ 20% on 1,000

12,700

Less: Rebate u/s 87A

NIL

Net Tax Payable*

12,700  

*Net Tax Payable has been calculated without taking into consideration the applicable Cess.
 
Also, one should keep in mind that the benefit of Rebate u/s 87A is available upto a limit and it is not an absolute deduction. Like if your annual taxable income is say, Rs 4,00,000 then the tax calculated will be Rs 7,500. In this case, you can avail the benefit of Rs 7,500 and not Rs 12,500. 

Post Interim Budget 2019 [(FY 2019-20) (AY 2020-21)]  

Particulars

Amount (Rs)

Annual Taxable Income

4,00,000

Less: Basic Exemption Limit

2,50,000

Tax Payable @ 5% on 1,50,000

7,500

Less: Rebate u/s 87A

7,500

Net Tax Payable*

NIL

 
 
To conclude we can say that the Rebate u/s 87A is available on
  • The amount of tax payable
  • or Rs 12,500
(whichever is lower)

To know more about Rebate under scetion 87A, read our complete blog below.


Empathizing with your situation, the government came up with Rebate u/s 87A in Budget 2013, to reduce the burden of taxes.
As a taxpayer, we always feel burdened with tax payments:(

Let’s understand how you can take advantage of an income tax rebate under section 87A in simple language!

What is Rebate under section 87A of the income tax?

Budget 2019 Amendment – 
Rebate u/s 87A provides exemption on tax payment to a RESIDENT INDIVIDUAL.As per this provision, if an individual’s taxable income is upto Rs. 5 lakhs then he will get the tax benefit of Rs. 12,500 or the amount of tax whichever is lower. If you are liable to pay tax upto the limit of rebate allowed, then after taking the rebate benefit, no payment will be required to be made for tax amount. For availing the full amount of rebate, the Total Taxable Income of return filer shall be upto Rs 5,00,000 for the Financial Year 2019-20(AY 2020-21).

Prior to Budget 2019 Amnedment-
Rebate u/s 87A provides exemption on tax payment to a RESIDENT INDIVIDUAL.As per this provision, if an 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. If you are liable to pay tax upto the limit of rebate allowed, then after taking the rebate benefit, no payment will be required to be made for tax amount. For availing the full amount of rebate, the Total Taxable Income of return filer shall be up to Rs 3,50,000 for the Financial Year 2017-18: the Assessment year 2018-19.

 Who is eligible to claim Rebate u/s 87A for FY 2017-18 (AY 2018-19)?

Rebate u/s 87A will only be available to

  • The RESIDENT INDIVIDUALS
  • Having Total Taxable Income upto Rs. 3,50,000.

What will be the quantum of Rebate allowed u/s 87A?

The calculation of section 87A is quite simplified. You will be allowed exemption from taxes up to the limit specified. But, obviously if your taxes payable are lower than the limits prescribed, your exemption will be restricted to such lower amount of taxes payable. To the conclusion we can say that

Rebate under section 87 A will be available for-
100% of tax payable or
Rs 2,500

whichever is lower

Note:

The Rebate of 87A shall be reduced from tax payable before, adding EC & SHEC to the tax amount.

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

Mr Virat, a resident individual, aged 28 years, has

Total Income Rs 5,20,000
Investments made u/s 80C Rs 1,50,000
Medical policy taken u/s 80D Rs. 25,000

What will be total taxable Income of Mr Virat for Assessment Year 2018-19.

Solution:

Total Taxable Income of Mr Virat will be

Total Income Rs 5,20,000
Less : Investments made u/s 80C Rs 1,50,000
Less : Medical policy taken u/s 80D Rs. 25,000
Total Taxable Income Rs 3,45,000

Since, his TTI is below the threshold of Rs. 3.5 lakhs, he is eligible for claiming Rebate u/s 87A.

What to know your tax payment for this year?

Check out our Income Tax Calculator for FY 2017-18

What are the steps involved in the calculation of Rebate u/s 87A?

The sequential steps involved in the calculation of  Rebate u/s 87A are

  1. Calculate your Net Gross Total  Income(GTI).
  2. Reduce the deductions under sections 80C to 80U.
  3. From TTI deduct the basic exemption limit which is Rs 2.5 lakhs for FY 2017-18.
  4. Calculate your Tax Payable as per Income Tax slabs.
  5. Deduct the amount of Rebate allowed.
  6. On your balance tax payable (if any) calculate the amount of EC and SHEC @ 3% payable.

In case your taxes payable are, amounting to the undermentioned values, Rebate granted under this section will be as follows:

Tax Payable Upto Rs 2500 Rs 2500 More than Rs 2500
Rebate u/s 87A 100% of Tax payable Rs 2500 Upto Rs 2500

 

Example to explain calculation of Rebate of section 87A for FY 2017-18(AY 2018-19):

Let us understand this with the help of an example discussed above.

Example to explain the Rebate of 87 A

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 :  EC & SHEC @ 3% 67.5
Final Tax payable 2,317.5
Final Tax payable rounded off to nearest multiple of 10 2,320

What is the amount of Rebate allowed under section 87A for the last 3 FY years (FY 2017-18, FY 2016-17, FY 2018-19)?

After the enactment of Sec 87A through Finance act 2013, a trend has been witnessed to keep slab distribution unchanged and bringing corresponding changes in limits prescribed u/s 87A.

For the FY 2016-17 the amount of Rebate allowed was Rs. 5,000 with a corresponding TTI of Rs 5 lakhs. With the reduction in lowest slab rate to 5%  the amount of rebate has also been reduced upto Rs 2500 by way of Finance Act 2017. The changes are kept still for the FY 2018-19 as well. A brief about the changes introduced can be summed up as under :

Rebate u/s 87A

 

 


(shall be lower of actual tax payable or max rebate allowed under this section)

FY 2016-17

 

 

(AY 2017-18)

FY 2017-18

 

 

(AY 2018-19)

FY 2018-19

 

 

(AY 2019-20)

Total Taxable Income shall be upto Rs. Rs. 5,00,000 Rs. 3,50,000 Rs. 3,50,000
Maximum Rebate u/s 87A Rs. 5,000 Rs. 2,500 Rs. 2,500

Now, It’s time for Some Q&A :

Since, we have already obtained clarity over the legal provisions relating to Rebate u/s 87A, lets head towards finding answers for some common questions.

  • Can NRI claim Rebate u/s 87A?

Section 87A clearly states that Rebate can be claimed only by RESIDENT INDIVIDUALS which means that the provision of Income Tax expressly prohibit to grant any benefit u/s 87A to Non Resident Indian (NRI)

  • 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 as Section 87A clearly states that Rebate can be claimed only by RESIDENT INDIVIDUALS.

Also, from this clause we can draw a conclusion that no such benefit shall be allowed to other person like Firms, Company etc.

  • 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 TTI is upto Rs 3.5 lakhs. Infact in this case NO Tax will actually be payable if TTI does not cross the specified threshold. Learn how, with the help of example below :

Total Taxable Income 3,50,000
Less : Basic Exemption Limit ( For Senior citizen) 3,00,000
Taxable Income 50,000
Tax Payable @5% 2,500
Less : Relief under section 87A,

 

 

lower of 1) Tax amount

               2) Rs 2500

2,500
  0
Add :  EC & SHEC @ 3% 0
Final Tax payable 0
  • 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 made. Hence, TTI will be computed in the usual manner and exempt income like PPF interest earned shall not be added back.

  • How to claim Rebate u/s 87A while filing my ITR with Tax2win?

Every year you have to worry about a lot of things like paying taxes, availing exemptions and filing ITR. Finally its your time to take a break and rest!! While filing your income tax return with Tax2win you need not worry about claiming Rebate u/s 87A. Our software automatically allows you the benefit with 100% accuracy.

  • Whether Surcharge will apply in calculating Rebate u/s 87A?

A person claiming Rebate u/s 87A will never attract levy of surcharge. Rebate under this section is allowed to a resident individual having TTI maximum upto Rs 3.5 lakhs. Whereas, surcharge @ 10% is triggered if total income of individual exceeds Rs 50 lakhs but does not exceed Rs 1 crore. Since a person claiming Rebate will never exceed TTI above 3.5 lakhs he will never attract surcharge while claiming Rebate u/s 87A.

  • What is the difference between Rebate u/s 89 and Rebate u/s 87A?

First to clear the air of confusion, it is relief  and not rebate u/s 89.

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
EC and SHEC are levied after allowing Rebate u/s 87A EC and SHEC are levied before  Relief u/s 89 is provided .
Surcharge can never apply in this case Surcharge may be attracted
Rebate is granted to each individual upto a maximum prescribed rate of Rs 2,500 for FY 2017-18 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.

  • What is income tax exemption limit for calculation of income tax rebate under section 87A?

For the purpose of calculation of Sec 87A , the income tax exemption limit shall be same as basic exemption limit. Currently this limit stands at Rs. 2,50,000. However if your total income is upto 3,50,000 then you are entitled to get the benefit of tax rebate u/s 87A of rs. 2500 or 100%  of tax amount whichever is lower

Conclusion:

Rebate u/s 87A emerged with a motive to provide relief to the taxpayers covered in lowest tax bracket. Inception of this section equipped government with providing direct benefit to the required section without reduction in overall tax rates. And an evident evidence of this can be traced with the frequent changing limits of 87A. For any further clarification and experts help in filing your taxes Contact Us Now!

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