written by Khatabook | July 2, 2021

Income Tax Rebate Under Section 87A

When filing your ITR the rebate under section 87a is an important IT provision. It helps individual taxpayers reduce their tax liability or taxable income. You can claim this tax rebate under section 87a when the total income in the FY is not greater than Rs 5,00,000. After claiming this rebate your tax liability gets reduced to zero. 

What is Rebate under Section 87A?

Rebate under section 87A an income tax provision that helps taxpayers to reduce their income tax. If your annual income does not exceed Rs 5,00,000 you can claim the rebate under section 87A.  As a result of claiming this rebate, your income tax liability becomes nil.

Union Budget 2019 Update

The Budget announcements in 2019 introduced the following benefits for taxpayers.

  • All taxpayers/ individuals with a taxable income of Rs 5,00,000 are eligible for tax rebates even under the income tax section 87A in full.
  • The Standard Deduction limits for the salaried employees increased from Rs 40,000 to Rs 50,000.
  • Benefits of exemption of Capital Gains tax under section 54 extended to 2 houses bought by a person in their lifetime.
  • The TDS (Tax Deduction at Source) limits on interest earned from post office savings and bank deposits raised from Rs 10,000 to Rs 40,000.

Claiming The Tax Rebate u/s 87A

Very often it is best to have a step-by-step guide to filing the ITR and claiming deductions, to avoid making mistakes. Here’s one for the rebate under 87A. 

  • First, use a calculator to find the FYs gross total income.
  • Deduct the valid tax deductions like tax-saving instruments and Senior Citizen Saving Scheme accounts etc.
  • Arrive at the net income for the FY after making all deductions.
  • File your ITR showing the gross income, net income and deductions.
  • If your income is lesser than Rs 5,00,000 claim a tax rebate under section 87A.
  • The maximum limit allowed under the rebate 87A for the AY of 2020-21 is Rs 12,500.

Let’s learn from an example of rebate calculation for an individual below 60 years filing in the AY of 2020-21 or FY of 2019-20.

 Particulars(FY 2019-20) 

Income (INR)

Gross total income

6,25,000

Less: Deduction* under section 80C

1,50,000

Total income

4,75,000

The income-tax rate applicable is 5% from income slabs between Rs 2.5 and 5 lakh is Rs.

11,250

Less:  Rebate claimed u/s 87A of a max of Rs 12, 500/-

11,250

Tax payable

Nil

Also Read: Time Limit To Deposit TDS And File TDS Return

Who Can Claim The Rebate u/s 87A?

You have to apply the rebate u/s 87A before calculating the health and education cess.

  • Individuals who are Indian residents can claim rebate U/S 87a.
  • Senior citizens (60 to 80 years) can also use this rebate U/S 87a.
  • The super senior citizens meaning those above 80 years cannot claim this rebate.
  • The rebate amount is Rs 12,500 which is the specified limit u/s 87A or the actual tax payable whichever. You must apply it before the cess calculations, as shown in the example above.

Eligibility Conditions For Rebates u/s 87A

You can use the rebate u/s 87A for FYs 2019-20, 2020-21 when you meet the criteria given below: 

  • A resident individual filing the ITR.
  • The total net income does not exceed Rs 5 lakh in the particular financial year.

The FYs 2017-18, 2018-19 ITR’s are eligible for rebate u/s 87A if:  

  • You are an individual residing in India.
  • Your total income before cess deduction and after deductions U/C VI-A U/S 80C, 80G, 80D, 80E etc, is less than INR 3.5 lakh.
  • The total amount of rebate is a maximum of INR 2,500. 

You must apply the tax  rebate u/s 87A  to the taxable gross income after the deductions and exemptions available. But it should be before calculation of health and education cess.  

Do note that rebate u/s 87a for FY 2019-20 is the same as rebate u/s 87a for AY 2020-21 and that the cess has changed. For Tax payable for FY 2017-18 you must calculate at the rate of 3% cess.  So 3% cess on Rs 2,500 is Rs 75 while under rebate u/s 87A for FY 2018-19 4%  cess on Rs. 2500 will be Rs 100. 

Chart For Rebate U/S 87A For All The FYs

Rates can sometimes get confusing. So here’s a chart that lists the rates of rebate available u/s 87A for financial years starting 2013-14 right up to the FY 2021-22.

FY

Total Income Limit  INR

87a rebate in INR

2021-22

5 lakh 

12,500

2020-21

5 lakh

12,500

2019-20

5 lakh

12,500

2018-19

3.5 lakh

2,500

2017-18

3.5 lakh

2,500

2016-17

5 lakh

5,000

2015-16

5 lakh

2,000

2014-15

5 lakh

2,000

2013-14

5 lakh

2,000

Individual Taxpayer Rates For AY 2021-22 or FY 2020-21 

Under the Income-tax laws, the individual Indian taxpayers can be classified into 3 groups.

  • Non-residents/ resident individuals under 60 years.
  • Resident senior citizens individuals between 60-80 years.
  • Resident super senior citizens above 80 years. 

Here’s the chart to understand the tax rates better.

Income Range INR

Tax INR ( Up to 60 Years)

2.5 Lakh

No tax

2.5 to 5 Lakh

5% of amounts exceeding 2.5 lakh.

5 to 10 Lakh

12,500 plus 20% of amounts exceeding 5 lakh

10 Lakh and above

1,12,500 plus 30% of amount exceeding10 lakh

Income Range INR

Tax INR (60 to 80 Years)

3 Lakh

No tax

3 to 5 Lakh

5% of amounts exceeding 3 lakh

5 to 10 Lakh

10,000 plus 20% of amounts exceeding 5 lakh

10 Lakh and above

1,10,000 plus 30% of amounts exceeding 10 lakh

 

Income Range INR 

Tax INR (80 Years plus)

5 Lakh

No tax

5 to 10 Lakh

20% of amounts exceeding 5 lakh

10 Lakh and above

1,00,000  plus 30% of amounts exceeding 10 lakh

Note: You have to pay an additional 4% Health and Education Cess on every count of the surcharge and income tax amount. The surcharge levied depends on the income slab.

Also Read: Income Tax in India: Basics, Slabs and E-filing Process 2021

Conclusion

Resident Indian individuals can claim this rebate u/s 87A when filing ITR returns. To take benefit of this rebate your income should not be more than Rs 5 lakhs after Chapter VI-A deductions. 

FAQs

1. Can an NRI claim rebate under Section 87A of Income Tax Act?  

No. The rebate is for resident individuals only. 

2. Is the rebate under 87A available to all resident Indian taxpayers?

The 87a rebate is available to individual HUF members/ resident Indians/ senior citizens, an association of persons AOP/ Trusts etc. It does not apply to companies, firms, the entire HUF etc.

3. When should I claim the rebate for AY 2019-20?

In the FY 2020-21 when filing your ITR for the AY 2019-20.

4. What happens when your TDS is already deducted and you are otherwise eligible for the sec 87A rebate?

Resident Indian individuals may claim this rebate u/s 87A when filing ITR returns. As applicable to FY 2019-20, if your income is not more than 5 lakh INR after Chapter VI-A deductions and you pay self-assessment tax, you can claim the 87a rebate in full and up to 12,500 INR. Where TDS has been deducted but your income after the deductions of Chapter VI-A apply is less than Rs 5 lakhs, you can seek a refund of the TDS amounts paid up to Rs 12,500.

5. Can I still claim rebate u/s 87A if my taxable income after deductions is more than Rs 5 lakh?

No. The limit specified is Rs 5 lakhs as the net taxable income meaning after deductions but before application of cess. You can then explore other tax saving options mentioned above to bring up the exemptions and deductions and thus reduce the taxable income to Rs 5 lakhs to avail of the Rs 12,500 rebate u/s 87A. 

6. Do the IT slabs change every year?

IT slabs are set out in the annual budget and may change every year.

7. Do men and women have different IT slabs?

No, income tax slabs are not gender-based and apply equally to all individuals male or female.

8. If my taxable income is exempt, should I disclose all sources of interest and income in the ITR?

Yes, you must disclose income from all sources, interest earned and exempt income always when filing the ITR irrespective of the tax liability.

9. Is agricultural income taxable?

The agricultural income is exempt from income tax. However, all other sources like salary, pensions, rents, FD interest etc earned by the taxpayer suffers tax.

10. Is the due date for ITR filing the same across taxpayers?

No, ITR filing for individuals, companies, HUF etc is not the same. 

11. How to calculate rebate under Section 87A?

  • First, use a calculator to calculate the FYs gross total income.
  • Deduct the valid tax deductions like tax-saving instruments and SCSS accounts etc.
  • Arrive at the net income for the FY after making all deductions.
  • File your ITR showing the gross income, net income and deductions.
  • If your income is lesser than Rs 5 lakh claim a tax rebate under section 87A.
  • The maximum limit allowed under the rebate 87A for the AY of 2020 to 21 is Rs 12,500INR.

12. What rebate u/s 87A is applicable for AY 2020-21?

The rebate amount for AY 2020-21 is unchanged under the new and old tax regimes. The individual resident taxpayer with taxable income less than Rs 5 lakhs gets a total rebate of Rs 12,500 or the tax payable when it is less than Rs 12,500.

13. What is the AY 2019-20 rebate u/s 87A?

The AY 2019-20 interim budget announced a full rebate of tax under section 87A for individuals with taxable income less than Rs 5 lakh. This means the limit of Rs 2,500 which existed has been raised to Rs 12,500.

14. Does the new tax regime offer an 87A rebate?
Yes. The rebate benefits u/s 87A are the same for all individuals and ages who are Indian residents under both the new and old tax regimes. The interim budget of 2019-20 announced a full rebate of tax under section 87A for individuals with taxable income less than Rs 5 lakh of up to Rs 12,500 u/s 87A.

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