The Income Tax Act of 1961 is full of sections that deal with levy, administration, collection and recovery of taxes. Each section deals with a certain income slab. One such section is Section 87A. This section was included in the Income Tax Act in Finance Act 2013.
It was introduced to provide benefits to people with a total taxable income of up to Rs 5 Lakh. People who fall under the criteria mentioned above can avail considerable rebate in section 87A. A taxpayer can get a tax rebate of up to Rs 12,500 under this section.
Features of Section 87A
Here are some of the essential features of section 87A.
Applicable to Indian Citizens Only:
Only people who are Indian citizens can avail of the benefit of tax rebates in section 87A. To be eligible for the same, a person has to have an Aadhaar card and a birth certificate as proof.
Both men and women can avail of the rebate:
Irrespective of the gender, both men and women can enjoy the benefits of tax rebates under this section as long as their net taxable income falls under the slab of Rs 5 Lakh.
Senior citizens eligible for the tax rebate:
Senior citizens who are 60 years in age but less than 80 years can file for a rebate in section 87A of Income Tax Act.
Only individuals can apply for a rebate:
Tax relief under this section is only applicable to individual taxpayers. This means Hindu Undivided Families (HUFs), firms, and companies cannot avail tax benefit under section 87A.
Rebate benefit restricted to Rs 12,500:
Tax rebate in section 87A can be availed for up to Rs 12,500 only. The rebate will be lower of 100% of the income tax liability or Rs 12,500, which means that if the tax liability increases from Rs 12,500, then also the taxpayer will get a rebate to the extent of Rs 12,500 only. However, no rebate will be available if the total taxable income is more than Rs 5, 00,000.
NRIs cannot avail rebate benefits:
Non-resident Indians (NRIs) are not eligible to claim tax rebate benefit under section 87A.
How much Rebate can be Availed?
The rebate in Section 87A is applied to total tax before adding Education Cess of 3 per cent. The rebate allowed over the years is as follows:
|Financial year||Rebate amount|
Eligibility Criteria for Claiming Tax Rebate in Section 87A
The government collects income tax through various means:
- Payment by taxpayers through advance tax, self-assessment tax, etc.
- Taxes deducted at source
- Taxes collected at source
Income tax rebate in section 87A has changed over the years. The rebate offered under section 87A in the year 2018-19 is different from the one offered in 2019-20.
For the year 2018-19, taxpayers whose net taxable income was up to Rs 3,50,000, could claim the benefit of rebate in section 87A, which means individuals whose tax liability was Rs 2500 or less are not required to pay any taxes.
However, the taxpayer will not be able to avail the rebate benefit if his or her tax liability is more than Rs 2500, or the annual taxable income of an individual was above Rs 3,50,000.
But for the year 2019-2020, the rebate limit has been revised and increased from Rs 2,500 to Rs 12,500.
This revised rebate limit ensures that people with net taxable income that does not exceed Rs 5,00,000 will not be required to pay any tax to the government.
Although these people do not have to pay taxes, they must file their tax returns. Those people who do not file tax returns might not be able to the benefits.
An individual can claim tax rebate in section 87A for the year 2020-21 under following conditions:
- The taxpayer is a resident individual
- His or her total income after subtracting deductions (under Section 80C, 80D, etc.) is not more than Rs 5 Lakh
The rebate available under section 87A is as follows:
|Total Income (Rs)||Tax payable before cess (Rs)||Rebate u/s 87A (Rs)||Tax Payable + 4% Cess (Rs)|
If a person is filing income tax returns for the year 2017-18 or FY 2018-19, the eligibility criteria to claim tax rebate in section 87A is different.
- The taxpayer has to be a resident individual
- His or her total income after deductions (under Section 80C, 80D, 80E, etc.) is less than Rs 3.5 Lakh
- The tax rebate will be applied to total tax before adding the health and education cess of 4% (FY 2018-19) or education cess of 3% (FY 2017-18)
The rebate amount is restricted to Rs 2,500. So, if the person’s total tax payable does not exceed Rs 2,500, then he or she will not have to pay any tax.
|Total Income (Rs)||Tax payable before cess (Rs)||Rebate u/s 87A (Rs)||Tax Payable + 4% Cess (Rs)|
Resident individuals and senior citizen can avail tax rebate in section 87A for FY 2017-18 as stated below:
|Total Income (Rs)||Tax payable before cess (Rs)||Rebate u/s 87A (Rs)||Tax Payable + 3% Cess (Rs)|
While doing tax planning, the taxpayer not only has to keep a tab on the income tax slabs but also the available tax rebate benefits and exemptions so that he or she can reduce the taxable amount.
After taking into account and reducing tax exemptions for salaried employees like LTA or LTC, house rent allowance, or insurance policy receipts, he or she gets their total gross income.
After further deductions like investment and savings under PPF, EPF, ELSS, fixed deposits, tuition fees, he or she gets their taxable income. On that taxable income, the income tax act offers a rebate in section 87A.
For example, Rohit is a salaried individual, and his current annual income is Rs 6,50,000. This means his salary qualifies to pay taxes. His employer is also most likely to deduct taxes at source.
This means that the employer will first deduct taxes from the income before crediting the salary into his account. Once he takes into consideration various deductions, his net taxable income can become less than Rs 5,00,000. In that case, Rohit will have to file an income tax return to get a refund of the taxes that his employer has deducted.
Another example states, if a person’s annual income is Rs 6,50,000, he or she can avail tax benefits by bringing it down to Rs 5 lakh through various investments. He or she can invest Rs 1.50 lakh under section 80C in a 5-year fixed deposit with a bank.
If the annual income is around Rs 8 lakh, the individual can invest Rs 1.50 Lakh in fixed deposits, another Rs 1.50 lakh u/s 80CCC in a pension plan of LIC and other reliable insurers. This way, he or she can decrease their tax liability.
How to Calculate Rebate u/s 87A?
Taxpayers can themselves calculate the rebate amount under section 87A by following these simple steps:
- Step 1 – The first and the foremost step for the taxpayer is to calculate his or her Gross Total Income (GTI).
- Step 2 – After that, they can subtract the deductions under sections 80C to 80U along with the basic exemption limit.
- Step 3 – Then, they have to calculate the tax liability according to Income Tax slabs listed under the Income Tax Act of 1961.
- Step 4 – Subsequently, they will have to deduct the amount of rebate allowed.
- Step 5 – Then, on their balance tax payable (if any), they will have to calculate the amount of Health and Education cess payable at 4%.
How to Claim the Rebate in Section 87A?
A taxpayer can claim the rebate in section 87A while filing their income tax return. The individuals can file for income tax returns till 31st July of every year. Although the financial year is from 1st April to 31st March, it gives the taxpayer four months extra to file his or her income tax returns.
In case the tax is already deducted under TDS by the employer, an individual can claim the rebate in section 87A as a refund at the time of filing income tax returns.
To claim the rebate amount under Section 87A of the Income Tax Act, the taxpayer has to enter the tax amount in ‘Rebate in section 87A’ column while filing an income tax return in any ITR form. The taxpayer can check the status of a refund ten days after filing it.
The taxpayer can easily track his or her income tax refund status online. They just need to follow the steps given below:
- Log on to the official website of Income Tax Department of India
- Then he or she will have to enter their user id, date of birth and password
- Then click on ‘My Account’ and subsequently on ‘Refund/demand’ status
- A page will appear giving all the details like the assessment year, status, reason (if the refund has failed) and mode of payment
An individual can also check income tax refund status online on the TIN-NSDL website.
- Visit the official website of TIN-NSDL
- The taxpayer can log in by entering pan card number and year of assessment
- Once the refund is processed by the IT department, it is sent to the refund banker. The status will reflect in the next ten days of filing the returns
The refund is sent either directly into the taxpayer’s account by RTGS or NEFT or by a cheque or demand draft on his or her registered address.
Ans: An income tax rebate is a refund that the taxpayer receives when the tax liability is less than the tax paid by him or her. They will receive a refund on extra tax with interest. And to claim the refund, they should file the ITR at the right time.
Ans: No, NRIs are not eligible to claim rebate benefits under section 87A. This facility is only available for Indian residents.
Ans: The total income of an individual is the income that includes his or her salary, his or her income from property, his or her income from profession or business as well as income from various other sources.
Ans: This benefit can only be availed by individuals who reside in India. Hindu Undivided Families (HUFs), companies, or firms are not entitled to this benefit.
Ans: If the tax liability is less than Rs 2000, then he or she will not be able to avail the benefits of the tax rebate.
Ans: Yes, Senior citizens can claim rebate in section 87A if he or she is an Indian resident, and their total taxable income is Rs 5 Lakh.
Ans: No, it is not required to make any such adjustments for calculating the rebate. The taxable income has to be calculated in the usual way without adding back any exemptions like interest earned on PPF.
Ans: No surcharge will be levied on any person claiming rebate in section 87A. Under this section, the rebate is allowed only to resident Indians whose total taxable income is Rs 5 Lakh, and the surcharge is only levied on income that exceeds Rs 50 Lakh but is less than Rs 1 Crore.
Ans: The table given below will explain the difference:
Income tax rebate Income tax deductions Can be claimed without any investment Is allowed on the invested amount Taxable income is specified No cap on taxable income NRIs and Hindu undivided families (HUFs) not eligible for it NRIs and HUFs can enjoy deduction benefits Rebate is deducted from total taxable income Deductions are made on total income and not taxable amount.
Ans: Yes, income tax rebates in section 87A can be claimed on taxable income, including agricultural income.
Ans: No, the income tax rebate in section 87A cannot be claimed on the sale or transfer of equity shares.