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Section 87A

The Income Tax Act of 1961 is amended from time to time to benefit taxpayers. Section 87A was introduced to help taxpayers reduce their income tax liability. With the introduction of this section, certain taxpayers earning income below a specified limit can leverage the provisions of this section and pay lesser/zero income tax. In this article, we will explain the rebate provisions under section 87A of Income Tax.

Who Can Claim Rebate Under Section 87A?

For Financial Year 2019-20 (AY 2020-21), the rebate u/s 87A can be claimed only by an individual who is a resident in India.

Eligibility To Claim Rebate u/s 87A

For FY 2020-21, the benefit of Section 87A can be availed by individuals only when their total income does not exceed INR 5,00,000.

How Is Rebate u/s 87A Calculated?

Rebate u/s 87A works like a deduction. The eligible amount of rebate is deducted from the amount of income-tax calculated (tax before other deductions and health and education cess of 4%).

As per this section, eligible taxpayers are entitled to an amount equal to 100% of the calculated income-tax or INR 12,500 (whichever is less) as a rebate.

That means if a taxpayer has a tax payable equal to or less than INR 12,500, he/she will not have to pay any amount as Income Tax.

Illustrations

Total Income (INR) Tax Payable before cess (INR) Rebate u/s 87A (INR) Net Tax Payable before cess (INR)
3,50,000 5,000 5,000 0
4,50,000 10,000 10,000 0
5,00,000 12,500 12,500 0
5,05,000 13,500 0 13,500

Points To Remember

  • Here, total income means total taxable income after deductions under chapter VI-A are considered.
  • For FY 2018-19 and FY 2017-18, the amount of tax rebate was limited to INR 2,500. The benefit of the rebate was available only to individuals who had a total income less than INR 3,50,000.
  • Rebate u/s 87A is not available for NRIs’.
  • HUFs, partnership firms or companies cannot claim rebate u/s 87A.