Is Section 87A Rebate for everyone?

Did you know?

Unlike basic exemption limit, Rebate under Section 87A is NOT for all Individuals.

Section 87A rebate is a tax benefit, which is available only to Resident Individuals whose taxable income (i.e. Gross Total Income less Deduction from 80C to 80U) is not more than Rs. 5 lakhs.

So if you satisfy both the conditions, then you can claim rebate and pay ZERO tax.

In this article, let’s understand:

• What is section 87A rebate?
• Conditions for claiming it and
• Maximum amount which can be claimed

So let’s begin. .

Introduction

Government has introduced section 87A (which deals with rebate) in Finance Act 2013 with an intention to reduce the tax burden to the small tax payers.

When it was first introduced, maximum amount that can be claimed was only Rs. 2,000 but it keeps on changing from time to time and now it has become Rs. 12,500.

What is section 87A Rebate?

In simple words, Section 87A rebate is a kind of tax benefit available to Individual tax payers if they satisfy certain conditions in a financial year. Remember, Rebate is not a blanket exemption available for each and every individual, it is available only for certain individuals who satisfy the eligibility criteria mentioned below.

Conditions for claiming rebate

If you satisfy the following conditions in a financial year, then you can claim rebate. Those are:

1. You must be Resident Individual and
2. Your Total Income should not be more than Rs. 5 lakh.

Here, Total Income is Gross Total Income less Chapter VI-A deductions less set-off and carry forward of losses.

How much can be claimed as rebate?

If you satisfy both the above conditions, then

(i) Rs. 12,500 or

(ii) Tax payable whichever is lower

is allowed as rebate under section 87A of Income Tax Act.

Key Points to remember:

– Rebate is always allowed from tax payable before adding Health & Education cess @4%

– It is NOT available for tax payable on LTCG @10% under sec 112A

Practical understanding of Rebate

Let’s consider two scenarios here to understand it better:

Assume X is a resident individual and his income is as follows under two different circumstances:

Particulars	Scenario 1 (Rs)	Scenario 2 (Rs)
Salary Income	7,00,000	6,00,000
Income from House Property	50,000	25,000
Interest Income	15,000	15,000
Gross Total Income	7,65,000	6,40,000
Less: Chapter VI-A deductions	1,50,000	1,50,000
Taxable Income (or) Total Income	6,15,000	4,90,000
Rebate eligibility under sec 87A	Not Eligible	Eligible

If you observe the above scenarios; in the 1st scenario X is NOT eligible for rebate since his total income is more than Rs. 5 lakhs. Whereas in the 2nd scenario, X is eligible for 87A rebate since his total income is not more than Rs. 5 lakhs.

Not applicable for whom?

As mentioned earlier, it is applicable only to Resident Individuals. So, Non-Resident Individuals (NRI) and other category of tax payers like HUF, Firms & Companies etc. are NOT eligible to claim this rebate.

What is difference between Rebate and Basic Exemption Limit?

Often people get confused with these two terms.

Rebate is only for specific individuals upon satisfying the conditions mentioned in Sec 87A of Income Tax Act. Whereas, Basic exemption limit is the income up to which you need not pay any tax.

Let’s see what is the difference.

Particulars	Rebate u/s 87A	Basic Exemption limit
1. For whom?	Only for Resident Individuals	For all Individuals
2. Changes with age?	Fixed for all age groups	Varies as per age
3. Any conditions?	Two conditions need to be satisfied	No such conditions

FAQ