Tax Rebate under Section 87A

In the year 2013-14 the government of India introduced rebate u/s 87A. This rebate provides benefits from your taxes payable. This benefit can be claimed when your taxable income does not exceed prescribed limits for the relevant financial year. For the FY 2019-20 if you are having taxable income up-to? 5,00,000 then you are not required to pay any taxes by availing the benefit of rebate u/s 87A.

What is Income Tax Rebate u/s 87A?

Rebate u/s 87A provides benefit on tax payment to a RESIDENT INDIVIDUAL. The only condition to avail the benefit is

“Your total taxable income shall not exceed the threshold limit”
Only the taxpayers falling under the specified threshold limit can claim the benefit of rebate u/s 87A. For the Financial Year (FY) 2019-20 [Assessment Year (AY) 2020-21] this limit is Rs. 5,00,000. Which means anyone having total taxable income exceeding Rs. 5,00,000 will not be able to take tax benefit under Section 87A and for such cases tax would be calculated at normal rates.

Rebate u/s 87A for FY 2020-21 (AY 2021-22)

The amount of rebate u/s 87A for FY 2020-21 (AY 2021-22) has been kept unchanged under both old and new income tax regime. A resident individual having taxable income upto Rs 5,00,000 will get a tax rebate of Rs 12,500 or equal to the amount of tax payable (whichever is lower).

How much is the rebate allowed u/s 87A?

If an individual’s total taxable income is upto Rs. 5 lakhs then he will get the tax benefit of

  • Rs. 12,500 or
  • The amount of tax payable
  • (whichever is lower)

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 to understand the calculation of Total Taxable Income for rebate u/s 87A
Mr. Anil, a resident individual, aged 28 years, has

Total IncomeRs. 5,75,000
Investments made u/s 80CRs. 1,50,000
Medical policy taken u/s 80DRs. 25,000

What will be the total taxable Income of Mr. Anil for Assessment Year 2020-21.
Solution: Total Taxable Income of Mr. Anil will be

Total IncomeRs. 5,75,000
Less : Investments made u/s 80CRs. 1,50,000
Less : Medical policy taken u/s 80DRs. 25,000
Total Taxable Income (TTI)Rs 4,00,000

Since, his TTI is below the threshold of Rs. 5 lakhs, hence taxpayer Mr. Virat is eligible for claiming rebate u/s 87A.

How to calculate rebate u/s 87A?

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

  • Calculate your Gross Total Income(GTI).
  • Reduce the deductions under sections 80C to 80U.
  • Calculate your Tax Payable as per Income Tax slabs.
  • Deduct the amount of rebate allowed.
  • On your balance tax payable (if any) calculate the amount of Health and Education Cess payable @ 4%.

Rebate granted under section 87A will depend upon your taxes payable for the FY 2019-20 (AY 2020-21). As under:

Tax PayableRebate u/s 87A
Less than Rs. 12,500Equal to the tax amount payable
Exactly Rs. 12,500Rs. 12,500
More than Rs. 12,500NIL

Let us consider an example to understand the calculations betterSuppose the Total Taxable Income of Mr. Anil is
A) Rs. 4 Lakhs
B) Rs.5 Lakhs
C) Rs. 6 Lakhs

Calculation of rebate u/s 87A and Tax Payable for the FY 2019-20 (AY 2020-21)

Total Taxable Income4,00,0005,00,0006,00,000
Less: Basic Exemption Limit2,50,0002,50,0002,50,000
Taxable Income after Basic exemption limit1,50,0002,50,0003,50,000
Tax Payable7,50012,50032,500
Less: Rebate under section 87A
Lower of
1) Tax Payable or
2) Rs 12,500
Balance Tax PayableNILNIL32,500
Add :  Health & Education Cess @ 4%1,300
Final Tax payable33,800

The benefit of rebate u/s 87A is not available because total taxable income exceeds Rs 5,00,000

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