The Income Tax Act, which was brought into force in 1961, is the statute under which all matters relating to taxation in India are listed. It includes levy, administration, collection as well as recovery of income tax. Section 87A, one of the several sections of the Income Tax Act, was inserted by the Finance Act, 2013, to provide tax relief to individual taxpayers. Rebate under Section 87A provides for a lower tax payment from individuals earning below a specified limit.
According to the Income Tax Department, “An individual who is resident in India and whose total income does not exceed Rs. 3,50,000 is entitled to claim rebate under section 87A. Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87A will be lower of 100% of income-tax liability or Rs. 2,500. In other words, if the tax liability exceeds Rs. 2,500, rebate will be available to the extent of Rs. 2,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 3,50,000.”
The following are some of the noteworthy points of Section 87A of the Income Tax Act, 1961:
The amount of deduction that can be claimed under this section is either 100% of the income tax liability or Rs. 2,500 (whichever is lower).
The rebate is applicable to total tax prior to adding the educational cess of 4%.
Only individuals are eligible to avail rebate under this section. Companies, firms or Hindu Undivided Family cannot claim this rebate.
Rebate benefit is available to senior citizens (individuals above the age of 60 years and below 80 years)
Super senior citizens (individuals above the age of 80 years) are not eligible for a rebate under Section 87A.
Only Indian residents are permitted to claim this rebate, NRIs are not allowed rebate under Section 87A.
A rebate under this section is allowed to taxpayers - being a resident individual - whose net total income is below Rs. 3,50,000. The rebate available is up to Rs. 2,500 or 100% of the income tax, whichever is lesser. The taxpayer can claim the rebate at the time of filing tax returns, prior to including education cess, secondary and higher education cess.
For FY 2017-18 and FY 2018-19
An individual is eligible to claim a rebate under Section 87A provided he or she meets the following conditions:
The individual must be an Indian resident.
His or her total income, less deductions under Section 80, has to be below or equal to Rs. 3,50,000.
Note - The rebate that can be claimed is limited to Rs. 2,500. This means that if the total tax payable is below Rs 2,500, that amount will be the rebate under section 87A.
To understand this better consider the following example:
| Taxable Income | Income Tax | Rebate Applicable Under Section 87A | Tax Payable |
|---|---|---|---|
| Rs. 3 lakhs | Rs. 2,500 | Rs. 2,500 | Nil |
| Rs. 3.1 lakhs | Rs. 3,000 | Rs. 2,500 | Rs. 500 |
| Rs. 3.2 lakhs | Rs. 3,500 | Rs. 2,500 | Rs. 1,000 |
| Rs. 3.3 lakhs | Rs. 4,000 | Rs. 2,500 | Rs. 1,500 |
| Rs. 3.4 lakhs | Rs. 4,500 | Rs. 2,500 | Rs. 2,000 |
| Rs. 3.5 lakhs | Rs. 5,000 | Rs. 2,500 | Rs. 2,500 |
| Rs. 3.6 lakhs | Rs. 5,500 | Nil | Rs. 5,500 |
| Rs. 3.7 lakhs | Rs. 6,000 | Nil | Rs. 6,000 |
| Rs. 3.8 lakhs | Rs. 6,500 | Nil | Rs. 6,500 |
Note -
For FY 2016-17
In FY 2016-17, an individual was eligible to claim a rebate under Section 87A provided he or she met the following conditions:
The individual is an Indian resident.
His or her total income, less deductions under Section 80, should be equal to or less than Rs. 5,00,000.
The rebate that could be claimed was limited to Rs. 5,000. This meant that if the total tax payable is below Rs. 5,000, that amount will be the rebate under section 87A.
To understand this better consider the following example:
| Taxable Income | Income Tax | Rebate Applicable Under Section 87A | Tax Payable |
|---|---|---|---|
| Rs. 3 lakhs | Rs. 2,500 | Rs. 2,500 | Nil |
| Rs. 3.5 lakhs | Rs. 5,000 | Rs. 5,000 | Nil |
| Rs. 4 lakhs | Rs. 7,500 | Rs. 5,000 | Rs. 2,500 |
| Rs. 4.5 lakhs | Rs.10,000 | Rs. 5,000 | Rs. 5,000 |
What is Section 87A of the Income Tax Act?
Section 87A, one of the several sections of the Income Tax Act, was inserted by the Finance Act, 2013, to provide tax relief to the individual taxpayers. Rebate under Section 87A provides for a lower tax payment from individuals earning below a specified limit.
According to the Income Tax Department, “A resident individual (whose net income does not exceed Rs. 3,50,000) can avail rebate under section 87A. It is deductible from income tax before calculating education cess. The amount of rebate is 100% of income tax or Rs. 2,500, whichever is less.”
Can NRIs claim rebate under section 87A?
No, NRIs cannot claim a rebate under this section. Only Indian resident individuals are permitted to claim a rebate under Section 87A.
Can this rebate be claimed by anyone?
To claim a rebate under Section 87A, the following conditions must be met:
He or she must be an individual Indian resident. NRIs, companies, firms or Hindu Undivided Family are not allowed rebate under Section 87A.
His or her total income (less deductions under Section 80) should be equal to or less than Rs. 3,50,000.
He or she must be below 80 years of age.
What if your tax liability is Rs. 2,000?
The rebate that can be claimed is limited to Rs. 2,500. When the total tax payable is below Rs. 2,500, that amount (Rs. 2,000 in this case) will be the rebate under section 87A.
What are the key points of Section 87A?
Listed below are some of the noteworthy points of Section 87A of the Income Tax Act, 1961:
The amount of deduction that can be claimed under this section is either 100% of the income tax liability or Rs. 2,500 (whichever is lower).
The rebate is applicable to total tax prior to adding the educational cess of 4%.
Only individuals are eligible to avail rebate under this section. Companies, firms or Hindu Undivided Family cannot claim this rebate.
Rebate benefit is available to senior citizens (individuals above the age of 60 years and below 80 years)
Super senior citizens (individuals above the age of 80 years) are not eligible for a rebate under Section 87A.
Only Indian residents are permitted to claim this rebate, NRIs are not allowed rebate under Section 87A.
What were the rebates applicable in the previous years?
The rebates allowed over the years are as follows:
| S. No. | Financial Year | Rebate Available |
|---|---|---|
| 1 | 2018-19 | Rs. 2,500 |
| 2 | 2017-18 | Rs. 2,500 |
| 3 | 2016-17 | Rs. 5,000 |
| 4 | 2015-16 | Rs. 2,000 |
| 5 | 2014-15 | Rs. 2,000 |
| 6 | 2013-14 | Rs. 2,000 |
What is the eligibility criterion to claim rebate under Section 87A for FY 2018-19?
An individual is eligible to claim a rebate under Section 87A provided he or she meets the following conditions:
The individual must be an Indian resident.
His or her total income, less deductions under Section 80, has to be below or equal to Rs. 3,50,000.
Note - The rebate that can be claimed is limited to Rs. 2,500. This means that if the total tax payable is below Rs. 2,500, that amount will be the rebate under Section 87A.
To understand this better consider the following example:
| Taxable Income | Income Tax | Rebate Applicable Under Section 87A | Tax Payable |
|---|---|---|---|
| Rs. 3 lakhs | Rs. 2,500 | Rs. 2,500 | Nil |
| Rs. 3.1 lakhs | Rs. 3,000 | Rs. 2,500 | Rs. 500 |
| Rs. 3.2 lakhs | Rs. 3,500 | Rs. 2,500 | Rs. 1,000 |
| Rs. 3.3 lakhs | Rs. 4,000 | Rs. 2,500 | Rs. 1,500 |
| Rs. 3.4 lakhs | Rs. 4,500 | Rs. 2,500 | Rs. 2,000 |
| Rs. 3.5 lakhs | Rs. 5,000 | Rs. 2,500 | Rs. 2,500 |
| Rs. 3.6 lakhs | Rs. 5,500 | Nil | Rs. 5,500 |
| Rs. 3.7 lakhs | Rs. 6,000 | Nil | Rs. 6,000 |
| Rs. 3.8 lakhs | Rs. 6,500 | Nil | Rs. 6,500 |
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