Computation of rebate u/s 87A

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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 under 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:

(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.
Let us understand this provision in detail.
What is the eligibility criteria or conditions to avail this Rebate?
The rebate u/s 87A is allowed only to certain individuals. The conditions to avail this rebate for FY 2018-19 (AY 2019-20) and FY 2019-20 (AY 2020-21) are as follows:
  • The taxpayer must be an individual and a resident. Hence any Non-resident individual or any HUFs, firms or companies cannot avail this rebate.
  • The Total income after deductions (under Section 80) must not exceed Rs 3.5 lakhs for FY 2018-19 and Rs. 5 lakhs for FY 2019-20.
What is the amount of Rebate available?

The amount of Rebate under this section is 100% of Income-tax payable but restricted to Rs. 2,500 for FY 2018-19 and has been increased to Rs. 12,500 for FY 2019-20.

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 Total income minus all deduction u/s 80C to 80U is less than Rs 5 lakhs (Rs 3.5 lakhs for FY 2018-19), Then the entire amount of tax payable to the extent of Rs. 12,500 ( Rs 2,500 for FY 2018-19) is available as Rebate u/s 87A.

For Example:

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

– Gross income from Salary Rs. 5,00,000/-
– Income from other source Rs. 20,000/-
– Deduction u/s 80C Rs 1,50,000/-
In the above scenario, the Income Tax computation of Mr. ABC for FY 2018-19 and FY 2019-20 will look like as follows:

FY 19-20 FY 18-19
Income under the Head Salaries:
Gross Salary 5,00,000 5,00,000
Less: Std. Deduction 50,000 40,000
Net Salary Income (A)  4,50,000 4,60,000
Income from Other Sources (B)        20,000     20,000
Gross Total Income (A+B)     4,70,000  4,80,000
Less: Deduction u/s 80C 1,50,000 1,50,000
Net Taxable Income     3,20,000  3,30,000
Tax on above          3,500        4,000
Less: Rebate u/s 87A 
Max limit Rs. 2,500 for FY 18-19 and          3,500        2,500
Rs 12,500 for FY 19-20)
Net tax payable                  –          1,500
Add: Cess @ 4%                 –             60
Total Tax Payable NIL        1,560

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About CA Janhavi Phadnis 78 Articles
Chartered Accountant and financial consultant. She has worked with corporates for 14 years with expertise in Forex-Treasury, Accounting, and Corporate Tax. She can be contacted at info.financepost@gmail.com

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