Tax Rebate under section 87A of Income Tax Act

By | June 16, 2016
(Last Updated On: June 16, 2016)

Tax Rebate under section 87A of Income Tax Act

Salient Features of Tax Rebate under section 87A of Income Tax Act

  • Tax Rebate under section 87A of Income Tax Act is available to Individuals having total income is less than Rs 5 Lakh. Total Income Means =[Gross Total Income Less Deductions u/s ( e.g LIC PPF etc ) ]
  • Tax Rebate under section 87A of Income Tax Act is available only to Resident Individuals ( i.e the Individuals who stay in India for more than 182 days during the relevant previous years). Thus this Rebate is not available to Non Resident Individuals or HUF’s / partnership firms etc.
  • Tax Rebate under section 87A of Income Tax Act is available to Individuals having total income is less than Rs 5 Lakh even if return is filed after due date /belated return.
  • Tax Rebate under section 87A of Income Tax Act is available whether Individual is Men or Women.
  • Tax Rebate under section 87A of Income Tax Act is allowed before levy of Education Cess, SHE Cess & Surcharge.
  • Tax Rebate under section 87A of Income Tax Act is available from  assessment year 2014-15 and subsequent assessment years.
  • Amount of Tax Rebate under section 87A of Income Tax Act is as follow
  • Financial Year Assessment Year Maximum Rebate Allowed (Rs)
    2013-14 2014-15 2000
    2014-15 2015-16 2000
    2015-16 2016-17 2000
    2016-17 2017-18 5000
  • Amount of Tax Rebate under section 87A of Income Tax Act in different situations for AY 2016-17 if the Income of the Individual is Less than Rs 500000 is as follow
  • Financial Year Assessment Year Maximum Rebate Allowed (Rs) Suppose Tax Payable is Actual Rebate u/s 87A to be allowed
    2015-16 2016-17 2000 1000 1000
    2015-16 2016-17 2000 1500 1500
    2015-16 2016-17 2000 4000 2000
  • Sometimes in case of Salaried employees, Employer dont give you the benefit  of Tax Rebate under section 87A of Income Tax Act in Form No 16. In that case you have to claim this tax rebate while filing your income tax return.

Example for better understanding of Tax Rebate u/s 87A

  1. 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. 19,570 from his salary. What will be his tax liability for the year?

**

Particulars Amount
Income from salary 5,84,000
Income from house property Nil
Profits and gains of business or profession Nil
Capital gains 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 (*) 24,000

Less : Rebate under section 87A (**)

     2,000

Tax Liability After Rebate 22,000
Add: Surcharge ($)      Nil
Tax Liability After Surcharge 22,000
Add: Education cess @ 2% on tax liability after surcharge       440
Add: Secondary and higher education cess @ 1% on tax liability after surcharge        220
Tax liability before rebate under sections 86, section 89, sections​ 90,90A and 91 (if any) 22660
Less : Rebate under sections 86, section 89, sections​ 90, 90A and91 (if any)         Nil
Tax Liability for the Year Before Pre-paid Taxes 22660
Less: Prepaid taxes in the form of TDS 10000
Tax payable/Refundable  12660

 

(*) The tax rates for the financial year 2015-16 applicable to an individual below the age of 60 years are as follows :

  • Nil upto income of Rs. 2,50,000
  • 10% 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. 2,000, being lower of following :

    (a) Tax on total income, i.e., Rs. 24,000; or

    (b) Rs. 2​,000

    ($) Surcharge is levied @ 15% 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.

    2. 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 87

3. Illustration for better understanding

Mr A has Total income including arrears Rs.572710. Total income excluding arrears Rs. 460910. Mr A  has apportioned arrears in respective financial year and got relief under section 89(i) . Is Mr A eligible for tax rebate u/s 87A of Rs. 2000/ as his total income related to this financial year is less than 5 lac.

No Mr A is not eligible for rebate u/s 87A, becasuse Tax rebate u/s 87A is calculated  on Total Income after Deductions but before giving effect of relief u/s 89 i.e., ceiling limit for 87A includes income + arrears which in case of Mr A exceeds ₹5 lacs.

4. Illustration for better understanding

Mr A total income excluding agricultural income 350000/- & agricultural income 250000/-. Can  he get Tax Rebate u/s 87A

As per Sec 87A Total Income should be below or equal to Rs. 500000 and as Mr A’s  Total Income is Rs. 500000 he will get benefit of Sec 87A

Purpose of Tax Rebate under section 87A of Income Tax Act

With a view to provide tax relief to the individual tax payers who are in lower income bracket, a tax rebate has been provided to an assessee, being an individual resident in India and having total income not exceeding five lakh rupees.

Tax Rebate under section 87A of Income Tax Act 1961 was inserted by Finance Act 2013 w.e.f 01.04.2014. Section 87A is as follow :-

Rebate of income-tax in case of certain individuals.

87A. An assessee, being an individual resident in India, whose total income does not exceed five hundred 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 per cent of such income-tax or an amount of *two thousand rupees , whichever is less.

[ * Word “five” shall be substituted for “two” by the Finance Act, 2016, w.e.f. 1-4-2017.]

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