Income Tax

Income Tax Rebate under Section 87A

Income Tax is a kind of Direct Tax imposed by the Indian Government on the very source of Income generated in a financial year, either by individuals or businesses. However, this form of Tax varies as per the income slab of an individual or business. There are other factors that affect the tax share on an income, such as age, mode of Income, industry, type of company, etc.

What is an Income Tax Rebate?

An income Tax rebate can be defined as a relief or refund one receives from the Income Tax Department in the circumstance when the individuals pay more taxes than one owes to the government. One who intends to receive a rebate from the Income Tax Department needs to make sure that the taxes have been computed and calculated correctly and that the Income Tax Return (ITR) has been filed according to the timeline.

Income Tax Rebate and Section 87 A

What does section 87 A of the Income Tax Act say?

Section 87A of the Income Tax Act paves a way to marginally reduce the Total Taxable Income of individuals. To understand better the Rebate under Section 87A, it is important that some of the terms used in taxation are clear and known. These terms are Tax Rebate, Tax Refund, Taxable Income, and Tax Exemption.

1. Tax Rebate: It is a kind of tax relief provided to individuals according to the amount of their total taxable Income is a Tax rebate. A deduction can be calculated by reducing the relief amount from the gross Income, and then the Tax is removed from the deducted sum.
2. Tax Refund: When the sum paid by the taxpayer is higher than the actual due Tax, then the extra amount is repaid to the taxpayer, which is known as a tax refund.
3. Tax Exemption: Similarly, Tax exemption is the exclusion of certain expenditures from the total Income, which further reduces the taxable liability by decreasing the taxable Income.
4. Taxable Income: Taxable Income refers to the total income left after making a deduction from the Income (according to section 80c).

Moreover, The Income Tax Act of India provides a specific relief to reduce taxable income, leading to shrinking tax liabilities of taxpayers with the help of Section 87A.

What Is Tax Rebate (Under Section 87A)?

Section 87 A Rebate provides a relaxation in the Total taxable Amount. A rebate shall either be less than 100% of the liability or INR 12500 (whichever is lesser). This referred sum is for Income up to INR 5 Lakhs. However, no rebate can be availed by individuals having an income higher than INR 5 lakhs as per the recent law, which will be increased to INR 7 lakhs in the next financial year.

When to Claim Rebate?

Any individual can claim a rebate when the total taxable income meets the requirement set forth under Section 87 A, which says that the Total Taxable Income to claim rebate u/s 87A shall be: i) Gross Total Income or ii) Less: Deduction u/s 80C to 80U

Answer:

Total Income	Rs. 4,75,000
Less: Investments made u/s 80C	Rs. 50,000
Less: Medical policy taken u/s 80D	Rs. 75,000
Total Taxable Income (TTI)	Rs 3,50,000

As the TTI is under the threshold of INR 5,00,000, Therefore Ms Anu is eligible to claim rebate u/s 87A for FY 2021-22 and FY- 2022-2023. This rebate limit has been increased from 5 lakhs to 7 lakhs as per the latest regime for FY 2023-24.

Who Can Claim Rebate under Section 87A?

The income tax paves a way to reduce the tax liability by reducing the tax amount. Any Individual who lies under the following categories can enjoy the benefits from it:

• Only the India Citizens are eligible to avail this tax relief. As proof of citizenship, the tax applicant has to submit an Aadhar card and birth proof.
• Taxpayers of any gender are qualified for rebates only if their Income is according to the prescribed income sum.
• Only taxpayers under certain income slabs can avail of rebates. The total Income after deductions, according to Section 80 of the Income Tax Act, should not exceed INR 3.5 lakhs.
•  The maximum threshold for rebate amount is INR 12500.
• Individuals with a total income of higher than INR 3.5 lakhs can claim a rebate of sum up to INR 5000
• Tax rebate under Section 87 A is only open for resident individuals to claim Tax, defining that neither HUF nor firms are eligible to claim this tax.

How to Claim Rebate under Section 87A?

An individual can claim a tax rebate of a maximum of INR 12,500 if one has paid self-assessment Tax and one’s Income is under Rs 5 lakh once deductions under Chapter VI-A have been claimed. Moreover, if TDS is applicable to one’s Income, and the total income post deduction claims are within INR 5,00,000. The Rebate under section 87 A can be claimed while filing an ITR and TDS of up to Rs 12,500 will be received by the individual.

Follow the below step-by-step guide to file for the rebate claim.

• Step 1: Compute your gross Income for the previous financial year
• Step 2: Subtract all the tax-claimed deductions to generate Total Taxable income
• Step 3: Gross tax liability on the Gross Total Income
• Step 4: Avoid adding cess to the amount
• Step 5: Claim rebate on your Total Tax Liability before cess and turn up to the net tax liability

Note: In case the Gross Income is less than ₹5 lakhs, the Rebate under section 87A for the Assessment year 2020-21 (₹12,500) will bring the net tax liability down to zero.

Learn to Calculate Rebate under Section 87A.

In order to calculate Rebate to claim under section 87 A, the following sample of calculation can be followed (for resident individuals less than 60 years of age with varied levels of Income): 

Sources of Income (FY 2020-21)	Income INR
Gross total Income	6,50,000
Less: Deduction u/s 80C	1,50,000
Gross Income	5,00,000
Income-tax (at 5% from ₹ 2.5 to 5 lakh)	12,500
Less: Rebate under section 87A	12,500
Net Tax payable	0

Rebate Chart under section 87A for previous Financial Years

The Indian government announced the Rebate under Section 87 A to be applicable from FY 2013-14 onwards. Since then, many changes have been made to the deduction amount, which can be seen in the following chart.

Financial Year	Limit on TTI	Rebate allowed u/s 87A*
2021-22	Rs. 5,00,000	Rs. 12,500
2020-21	Rs. 5,00,000	Rs. 12,500
2019-20	Rs. 5,00,000	Rs. 12,500
2018-19	Rs. 3,50,000	Rs. 2,500
2017-18	Rs. 3,50,000	Rs. 2,500
2016-17	Rs. 5,00,000	Rs. 5,000
2015-16	Rs. 5,00,000	Rs. 2,000
2014-15	Rs. 5,00,000	Rs. 2,000
2013-14	Rs. 5,00,000	Rs. 2,000

Latest Amendment made to Rebate under section 87A (2023)

The Indian government proposed several amendments in Budget 2023¹ with a vision to make the new tax regime as lucrative as possible. The rebate limit has been extended to Rs. 7,00,000 under the proposed Amendment for the upcoming fiscal year (FY 2023-24)(AY 2024-25). In simple words, it suggests that now a resident individual with a taxable income of less than INR 7,00,000 will be eligible for INR 25,000 of Rebate or the sum of Tax payable (whichever is lower) as relief or allowance. On the contrary, the threshold limit for the old regime remains the same, which is INR 12.500 for Income less than or up to INR 5,00,000.

Conclusion

The Amendment made in 2013 to add abatement under section 87 A of the Indian Income Tax Act 1961 has been proven to be a change of relief for the citizens. Moreover, the changes that took place since then, including the recent Amendment of 2023 to increase the threshold limit to Rs 7,00,000, show a way forward to the growing safety for individuals in the economic world. Rebate under section 87A is a remedy for all those who happened to pay taxes more than it was due to them. Filing income is indeed a complex process, and availing the fruits of allowances needs vigilant planning. In case of ambiguity or uncertainty, consider seeking support from a skilled tax consultant or chartered accountant.

Read our Article: All you need to Know about Tax Rebate under Section 87A

FAQs

1. https://www.indiabudget.gov.in/