Computation of rebate u/s 87A

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Last updated on July 22nd, 2022 at 11:55 am

Section 87A of Income Tax Act: Rebate

The Income Tax Act, 1961 provides for a Rebate of income tax to certain individuals whose income does not exceed a certain limit. This limit has been increased substantially in Budget 2019. Let us understand this provision and computation of Rebate in detail.

 

What is a Rebate of Income Tax?

A rebate of Income-tax, as the term suggests is an amount of tax that is free or is not to be paid to tax authorities. In other words, the taxpayer is exempt from paying tax to the extent of the “Rebate” amount if he satisfies the eligibility criteria mentioned in the Act.

Hence, in order to avail Rebate, the taxpayer must have a taxable income and should file his tax return.

 

What is the provision under the Income Tax Act?

The extract of the Act is as below.

87A. An assessee, being an individual resident in India, whose total income does not exceed [three hundred fifty thousand]* rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred percent of such income-tax or an amount of [Two thousand and five hundred]* rupees, whichever is less. 
*Amendment of section 87A

The Finance Act 2019, after the Interim Budget 2019 has amended the above section as follows:

[su_table]

(a) for the words “three hundred fifty thousand”, the words “five hundred thousand” shall be substituted;
(b) for the words, “two thousand and five hundred”, the words “twelve thousand and five hundred” shall be substituted.
[/su_table]
Let us understand this provision in detail.

What is the eligibility criteria or conditions to avail of this Rebate?

The rebate u/s 87A is allowed only to certain individuals. The conditions to avail of this rebate are:
  • Only a RESIDENT INDIVIDUAL taxpayer can claim the rebate u/s 87A.  Hence any Non-resident individual or any HUFs, firms, or companies cannot avail of this rebate.
  • The total income after deductions (under Section 80) must not exceed Rs 5 lakhs for the financial year. (Note: The limit was Rs 3.5 Lakhs upto FY 2018-19)

 

What is the amount of Rebate available? | Maximum Rebate u/s 87A

The amount of Rebate under this section is 100% of Income-tax payable but restricted to Rs. 12,500  for the financial year.  ( Note: Maximum rebate u/s 87A was Rs. 2,500 upto 2018-19)

Computation of Rebate u/s 87A

In order to compute the Rebate u/s 87A, one should first compute the Total Income of the Individual and reduce deductions u/s 80C to 80U.

Total income, in this case, includes income under all heads

  • Salary,
  • Income from house property,
  • Income from Business and profession,
  • income from capital gain and
  • Income from other sources

minus all deduction u/s 80C to U

If the total income minus all deduction u/s 80C to 80U is less than Rs 5 lakhs, Then the entire amount of tax payable to the extent of Rs. 12,500 is available as Rebate u/s 87A.

Note: Rebate u/s 87A is also available if you opt for the new tax regime u/s 115BAC

For Example:

Mr. ABC is a resident individual with the following Income:

– Gross income from Salary Rs. 5,00,000/-
– Income from other sources Rs. 20,000/-
– Deduction u/s 80C Rs 1,50,000/-
In the above scenario, the Income Tax computation of Mr. ABC for a FY will be as follows:

[su_table]

 Particulars

Amount

Gross Salary

5,00,000

Less: Std. Deduction

(50,000)

Net Salary Income (A)

4,50,000

Income from Other Sources (B)

20,000

Gross Total Income (A+B)

4,70,000

Less: Deduction u/s 80C

(1,50,000)

Net Taxable Income

3,20,000

Tax on above

3,500

Less: Rebate u/s 87A

(3,500)

Net tax payable

0

Add: Cess @ 4%

0

Total Tax Payable

0

[/su_table]

 

CA Janhavi Phadnis

 

Disclaimer: The above content is for general info purpose only and does not constitute professional advice. The author/ website will not be liable for any inaccurate / incomplete information and any reliance you place on the content is strictly at your risk.

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