5 Mins

The tax rebate u/s 87A allows a taxpayer to reduce his/her tax liability marginally depending on the net total income. In this article, we will cover the eligibility, steps to claim, points to keep in mind while claiming the rebate.

Income Tax Rebate u/s 87A Of Income Tax Act, 1961

Section 87A of the Income Tax Act was introduced in 2013 to provide relief to taxpayers. This Section has been in effect for several years. However, the term tax rebate gained popularity after the recent amendments in the provisions of Section 87A of the Income Tax Act, 1961. 

It is available to resident individual taxpayers whose total income does not exceed Rs 5 lakh in the given financial year. Here, total income includes the tax deduction under Chapter VIA. The popular deductions under Chapter VIA for salaried taxpayers are deductions under sections 80C, 80D and 80E.

The income tax rebate will be up to Rs 12,500 on the total tax liability before adding the health and education cess of 4%

How to calculate income tax rebate?

The following is the step by step process to calculate the available amount u/s 87A. 

  • To calculate rebate, first add up income from all sources like salary, house rent, capital gains, income from other sources, etc. This is the total gross income.
  • Now from the gross income, apply deductions under Chapter VIA of Income Tax Act, 1961. The amount after claiming all deductions is your net taxable income. 
  • Net taxable income is less than or equal to Rs. 5 lakhs
  • If the net taxable income is less than or equal to Rs. 5 lakhs, the individual is eligible to claim a rebate under section 87A of Rs 12,500
  • If the net taxable income exceeds Rs. 5 lakhs, then the individual is not allowed to claim the rebate. They have to pay taxes as per the slab rate applicable during that financial year. 
Let us understand with an example – 
Particulars (Rs.)Mr. Arun(age less than 60 years)Mr. Ajay (Senior Citizen)Mr. Anil(age less than 60 years)
Gross Total Income6,80,0006,10,0006,40,000
Deduction under Chapter VIA1,50,0001,50,0001,50,000
Net Taxable Income5,30,000460,0004,90,000
Tax Liability (before cess)1850010,50012,000
Section 87A rebateNIL10,50012000
Tax Payable18500NilNIL
Tax Paid During the Financial Year through:Advance tax orSelf Assessment Tax orTDS deducted120005000NIL
Net Tax Payable/ (Refund)6500
Payable
(5000)
Refund
No Refund
No Payable
4% cess Net Tax Payable260NILNIL
Total Liability6760NILNIL

Eligibility to claim tax rebate u/s 87A

For FY 20-21 and AY 21-22 and For FY 19-20 and AY 20-21

The following is the criteria to avail of the rebate under Section 87A for FY 19-20 and AY 20-21

  • The individual taxpayer must be a resident of India.
  • The total taxable income after applicable deductions under Chapter VIA should not exceed Rs. 5 lakhs in a financial year.
  • A taxpayer can claim a rebate up to Rs 12,500. In case the tax payable is less than Rs 12,500, then the tax payable will be the tax rebate. The tax rebate cannot be more than the tax payable (before the addition of cess). Moreover, an education cess of 4% is added after the rebate on the tax liability. 
The following is the example for understanding the concept better – 
Total Income of a resident individual taxpayerTax payable Rebate Allowed Under Section 87AIncome tax + Cess @ 4%
2,75,000125012500
3,00,0002,5002,5000
4,90,00012,00012,0000
10,00,0001,12,50001,12,500 +4,500 = 1,17,000

For FY 18-19 and AY 19-20

The following is the criteria to avail of rebate under Section 87A for FY 18-19 and AY 19-20

  • The individual must be a resident Indian.
  • The total taxable income after applicable deductions under Chapter VIA should not exceed Rs. 3.5 lakhs in a financial year.
  • Tax rebate is limited to Rs. 2,500. Therefore, if the total tax payable is less than Rs 2500 amount, then only such amount is eligible for tax rebate under Section 87A. In other words, a rebate can’t be more than a tax payable amount. Moreover, an education cess of 4% is added after the rebate on the tax liability. The same rules apply to senior citizens. 
The following is the example for understanding the concept better – 
Total Income of a resident individual taxpayerTax payable Rebate Allowed Under Section 87AIncome tax + Cess @ 4%
2,75,0001,2501,2500
3,00,0002,5002,5000
3,50,0005,0002,5002,500+100 = 2,600

Frequently Asked Questions

Can an NRI claim rebate allowed u/s 87A?

No, only resident individual taxpayers can claim the income tax rebate. An NRI taxpayer is not allowed to claim an income tax rebate under Section 87A. 

Who can claim rebate u/s 87A?

Only individual taxpayers are eligible for rebate under Section 87A. Other taxpayers like companies, partnership firms or  Hindu Undivided Family (HUFs) cannot claim this tax rebate.

How to claim rebate?

In order to claim the rebate, it is necessary to file income tax return. At the time of filing your income tax return, you can claim your tax rebate. After filing your ITR, you will be eligible to claim a refund as well in case you had paid taxes before claiming your tax rebate.

Is the tax rebate applicable on total tax liability in addition to cess?

The tax rebate is available on the total tax liability calculated as per the income tax slab rate. This rebate is not applicable to the cess payable by a taxpayer. Hence, the rebate is before adding any surcharge or cess.

Is the tax rebate flat Rs 12,500?

No, a taxpayer can claim an income tax rebate up to the tax liability only. For example- Mr. Akash has a tax liability of Rs 7,500 and the total income chargeable to tax is Rs 400,000. Mr. Akash is eligible for tax rebate. He can claim a rebate of Rs 7500 only and not Rs 12500. The tax rebate can never exceed the tax liability of the taxpayer.