Section 87A of Income Tax Act: Rebate
The Income Tax Act,1961 provides for a Rebate of income tax to certain individuals whose income does not exceed a certain limit. This limit has been increased substantially in Budget 2019. Let us under this provision and computation of Rebate in detail.
What is a Rebate of Income Tax?
A rebate of Income-tax, as the term suggests is an amount of tax that is free or is not to be paid to tax authorities. In other words, the taxpayer is exempt from paying tax to the extent of the “Rebate” amount if he satisfies the eligibility criteria mentioned in the Act.
Hence, in order to avail Rebate, the taxpayer must have a taxable income and should file his tax return.
What is the provision under the Income Tax Act?
The extract of the Act is as below.
87A. An assessee, being an individual resident in India, whose total income does not exceed [three hundred fifty thousand]* rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred percent of such income-tax or an amount of [Two thousand and five hundred]* rupees, whichever is less.
*Amendment of section 87A
The Finance Act 2019, after the Interim Budget 2019 has amended the above section as follows:
|(a)||for the words “three hundred fifty thousand”, the words “five hundred thousand” shall be substituted;|
|(b)||for the words, “two thousand and five hundred”, the words “twelve thousand and five hundred” shall be substituted.|
What is the eligibility criteria or conditions to avail this Rebate?
The amount of Rebate under this section is 100% of Income-tax payable but restricted to Rs. 2,500 for FY 2018-19 and has been increased to Rs. 12,500 for FY 2019-20.
Computation of Rebate u/s 87A
In order to compute the Rebate u/s 87A, one should first compute the Total Income of the Individual and reduce deductions u/s 80C to 80U.
- Total income, in this case, includes income under all heads
- Income from house property,
- Income from Business and profession,
- income from capital gain and
- Income from other sources
- minus all deduction u/s 80C to U
If Total income minus all deduction u/s 80C to 80U is less than Rs 5 lakhs (Rs 3.5 lakhs for FY 2018-19), Then the entire amount of tax payable to the extent of Rs. 12,500 ( Rs 2,500 for FY 2018-19) is available as Rebate u/s 87A.
Mr. ABC is a resident individual with the following Income:
Income under the Head Salaries:
Less: Std. Deduction
Net Salary Income (A)
Income from Other Sources (B)
Gross Total Income (A+B)
Less: Deduction u/s 80C
Net Taxable Income
Tax on above
Less: Rebate u/s 87A
Max limit Rs. 2,500 for FY 18-19 and
Rs 12,500 for FY 19-20)
Net tax payable
Add: Cess @ 4%
Total Tax Payable