What is rebate under section 87A and who can claim it?. An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 after deduction 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. 5,000. In other words, if the tax liability exceeds Rs. 5,000, rebate will not be available.
However in case of taxpayer, being an Individual resident in India, rebate under section 87A of Rs. 12,500 or 100% of tax, whichever is lower, would be provided if his total income does not exceed Rs. 5,00,000.
What is rebate under section 87A and who can claim it?
Rebate u/s. 87 A Conditions:
- Must be Resident Individual and,
- A RESIDENT INDIVIDUAL having TOTAL INCOME upto Rs. 5.00 lac shall be eligible for a rebate of Rs. 12,500 restricted to the amount of tax payable by him.
- Rebate u/s 87A not available to any other assessee.
- This rebate is available before charging education cess.
Section 87A provides rebate of income tax to resident individual, whose total income does not exceed Rs 5,00,000. The amount of rebate is Rs 12,500 or 100% of income tax whichever is less. It is deductible from income tax before calculating health and education cess. [Amendment by Finance (No.2) Act, 2019]
Compute rebate u/s 87A in the following cases:
In order to provide tax relief to the individual tax payers who are in the 5% tax slab, section 87A provides a rebate from the tax payable by an assessee, being an individual resident in India, whose total income does not exceed Rs 5,00,000.
- (1) The rebate shall be equal to the amount of income-tax payable on the total income for any assessment year or an amount of Rs 12,500, whichever is less.
- (2) Consequently, any individual having total income up to Rs 5,00,000 will not be required to pay any tax. In effect, the rebate would be the tax payable or Rs 12,500, whichever is less.
- (3) Further, the aggregate amount of rebate under section 87A shall not exceed the amount of income-tax (as computed before allowing such rebate) on the total income of the assessee with which he is chargeable for any assessment year.
|Particulars||Case 1||Case 2|
|Total Income||Rs 4,90,000||Rs 5,12,000|
|Tax on above||Rs 12,000||Rs 14,000|
|Rebate u/s 87A||Rs 12,000||Nil|
|Reason||Total income exceeds Rs 5 lacs|
|Tax after rebate||Nil||Rs 14,900|
Illustration for better understanding
Mr. Raja (age 35 and resident in India) is a salaried employee. His taxable salary for the year 2016-17 amounted to Rs. 5,84,000. He has deposited Rs. 94,000 in public provident fund untitled for deduction under section 80C. The employer has deducted tax of Rs. 22,660 from his salary. What will be his tax liability for the year?
|Income from salary||5,84,000|
|Income from house property||Nil|
|Profits and gains of business or profession||Nil|
|Income from other sources||Nil|
|Gross Total Income||5,84,000|
|Less : Deductions under section 80C on account of investment in PPF||94,000|
|Total Income (i.e., taxable income)||4,90,000|
|Tax on taxable income to be computed by applying the applicable rates (*)||12,000|
|Less : Rebate under section 87A (**)||12,000|
|Tax Liability After Rebate||Nil|
|Add: Surcharge ($)||Nil|
|Tax Liability After Surcharge||NIL|
|Add: Education cess @ 2% on tax liability after surcharge||NIL|
|Add: Secondary and higher education cess @ 1% on tax liability after surcharge||NIL|
|Tax liability before rebate under sections 86, section 89, sections 90,90A and 91 (if any)||NIL|
|Less : Rebate under sections 86, section 89, sections 90, 90A and 91(if any)||Nil|
|Tax Liability for the Year Before Pre-paid Taxes||NIL|
|Less: Prepaid taxes in the form of TDS||NIL|
(*) The income tax rates for the financial year 2019-20 applicable to an individual below the age of 60 years are as follows :
- Nil upto income of Rs. 2,50,000
- 5% for income above Rs. 2,50,000 but upto Rs. 5,00,000
- 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
- 30% for income above Rs. 10,00,000.
Apart from above, education cess @ 2% and secondary and higher education cess @ 1% will be levied on the amount of income-tax. Applying the above normal tax rates, tax on income (before cess) will come to Rs. 24,000.
(**) Rebate under section 87A will be Rs. 5,000, being lower of following :
(a) Tax on total income, i.e., Rs. 24,000; or
(b) Rs. 5,000
($) Surcharge is levied @ 12% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, the total income is below Rs. 1 crore and, hence, no surcharge will be levied.
Must Read – What is marginal relief and how it is computed?
Illustration for better understanding
Mr. Kapoor (age 35 years and resident in India) is running a medical store. Taxable business income for the year amounted to Rs. 5,84,000. He does not have any other income. He deposited Rs. 50,000 in public provident fund. Can he claim rebate under section 87A?
Rebate under section 87A is available to an individual who is resident in India and whose total income does not exceed Rs. 5,00,000. In this case, the gross total income of Mr. Kapoor is Rs. 5,84,000 and he has deposited Rs. 50,000 in PPF and, hence, total income i.e. taxable income will come to Rs. 5,34,000 (Rs. 5,84,000 less Rs. 50,000). Rebate under section 87A is available only if the total income does not exceed Rs. 5,00,000. In this case, the total income exceeds Rs. 5,00,000 and, hence, he cannot claim rebate under section 87A.
Can a partnership firm or HUF claim rebate under section 87A?
Rebate under section 87A is available only to an individual, hence, any person other than an individual cannot claim rebate under section 87A.
Can a non-resident claim rebate under section 87A?
Rebate under section 87A is available only to an individual who is resident in India, hence, non-residents cannot claim rebate under section 87A