Rebate Under Section 87A of The Income Tax Act

The Finance Act 2013,had introduced Section 87A under The Income Tax Act,to provide relief to the small tax payers.

This section provided for a Tax rebate of Rs.2000 to the Resident Individuals having a Total Income less than or equal to Rs.5 lakhs.

Further,as per recently presented Union budget in Feb 2016 ,the Finance minister has raised this tax rebate from Rs.2000 to Rs.5000 to give an additional benefit to the small tax payers.

Important amendment : 

As per Union Budget 2017-18 : For financial year 2017-18 the rebate under section 87A has been reduced to Rs.2500 for individuals having income upto Rs.3.5 lakhs. This means for financial year 2017-18 :

• The maximum tax rebate under section 87A shall be Rs.2500 only.
• The same shall be available for individuals having income upto Rs.3.5 lakhs only.

This has been done in order to avoid duplication of tax benefits.

KEY POINTS TO CONSIDER FOR RELIEF UNDER SECTION 87A :

• Rebate under section 87A is available only to Resident Individuals. So,all resident individuals including male,female or senior citizens can claim this rebate. However,Super-senior citizens ( 80 years and above)  do not get any benefit of this section because their income upto Rs.5 lakhs is already exempt from tax (as per income tax slabs).
• NRI or Non Resident Individuals cannot claim this rebate.
• An HUF,AOP,BOI,Firm,LLP,Company,Trust are not eligible to claim Rebate U/s 87A.
• The tax rebate shall be of Rs.5000 for Financial Year 2016-17. So,if your total income for the Financial Year 2016-17 is upto Rs.5 lakhs, you can enjoy this extra benefit by reducing Rs.5000 from your tax liability.(Earlier the rebate was Rs.2000 only.)
• Total income refers to income computed after making all deductions under Chapter VI A of Income tax act.

e.g. Mr.A has a gross income of Rs.560000 and his eligible deductions amount to Rs.60000. Here,net income of Mr.A after deductions is Rs.500000. So,Mr.A is fully eligible to claim a tax rebate Under Section 87A.

• Rebate Under Section 87A is Rs.5000 or Total tax payable whichever is least. So,if your total tax payable for Financial Year 2016-17 comes out to be say Rs.3500 then you can claim a rebate of maximum Rs.3500 only.

• You have to keep one thing in mind, this rebate applies to your total tax liability and not to your income. This means Rs.5000 is to be deducted from your tax payable amount. Relief Under Section 87A does not increase the basic exemption limit for Individual taxpayers which is Rs.250000 only.

• This rebate is levied before Education cess and Secondary and higher education cess.

The following table clarifies the “Total Income” to be considered for claiming Rebate under section 87A :

Income Heads	Amount (Rs.)
Salary Income	xxx
Add : House Property	xxx
Add : Profit &Gains from Business/Profession	xxx
Add : Capital gains
Add : Income from Other sources	xxx
Gross Total Income	xxx
Less : Tax deductions under section 80C to 80U	xxx
Total Income	xxx (This total income should be upto Rs.5 lakhs)

Now,calculate tax payable on the net taxable income as per the Income tax slab rates. You can claim rebate U/s 87A on the net tax payable as below :

Tax payable ( As per Income tax slabs)	xxx
Less : Income tax rebate under section 87A	5000 ( Rs.5000 for F.Y. 2016-17. This was Rs.2000 earlier)
Total tax payable	xxx
Education cess & Higher education cess	xxx
Balance tax payable	xxx

Let us clarify the same with the help of simple examples :

Example 1 :

Mr.X has Salary Income = Rs.400000 and Investments to claim deduction under section 80C amounting to Rs.100000

Now,his Total income is Rs.300000 (after considering all deductions under Chapter VI A).

Total Income = Rs.300000 ( Mr.X is eligible to claim Rebate U/s 87A )

Less : Basic exemption limit=Rs.250000

Net taxable income = Rs.50000

Tax liability @10% of Net taxable income=Rs.5000

Less: Rebate U/s 87 A =Rs.5000

Net tax liability is reduced to nil.

See,how the tax liability of Mr.X has been reduced to nil after claiming the tax benefit U/s 87A.

Example 2 :

Mr.Y has Salary Income of Rs.600000 and Investments to claim deduction under section 80C amounting to Rs.150000.

Now,his Total income shall be Rs.450000 (after considering all deductions under Chapter VI A).

Total Income = Rs.450000 ( Mr. Y becomes eligible for Rebate U/s 87A )

Less : Basic exemption limit=Rs.250000

Net taxable income = Rs.200000

Tax liability @10% of Net taxable income=Rs.20000

Less: Rebate U/s 87 A =Rs.5000

Net tax payable = Rs.15000

Add : Education cess (EC) and Secondary & Higher Education Cess (SHEC) (3%) = Rs.450

Total tax payable shall amount to Rs.15450 only.

Example 3 :

Mr.Z has Salary Income of Rs.800000 and Investments to claim deduction under section 80C amounting to Rs.150000.

Now,his Total income shall be Rs.650000 (after considering all deductions under Chapter VI A).

So,Mr.Z is not eligible for Tax rebate U/s 87A.

Just check your eligibility to claim this rebate.You can save some of your taxes that too in a legal way.

Hence,you can claim the Rebate under section 87A while filing your Income tax return(ITR). The rebate is claimed before adding education cess and higher education cess (as shown in the example above).

If you are using the E-filing Excel Utility at the E-filing website, your tax payable shall be calculated automatically after adjusting the Tax rebate under section 87A.

Feel free to share your valuable feedback and any queries thereon in the comment section below !

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