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As per the Intermin Union Budget of 2019-20, presented on 1 Feb 2019, the finance minister that for an individual resident of India, whose total income does not exceed 5 lakh rupees is entitled to a rebate of Rs 12,500 for FY 2019-20. For FY 2018-19 the rebate is of Rs 2,500 till taxable income of 3.5 lakhs. For people earning more than Rs 5 lakh annually, the “old” tax rates will continue. One can claim the rebate under section 87A only when one files the ITR. This article explains Income Tax rebate under section 87A in detail, What is Section 87A, How much income tax rebate can one claim under section 87A, How is Income Tax Rebate under section 87A calculated with examples, When to Claim Income Tax rebate under Section 87A? What is the difference between Exemption, Rebate and Deduction?

Overview of the Rebate under section 87A

To help individual taxpayers in lowering the tax outflow from their pocket a new section 87A was introduced. Section 87A provides for an income tax rebate of Rs 2,000 for individual resident taxpayers not having income more than 5 lakh.  The salient features of Income Tax Rebate under Section 87A:

  1. The amount of tax rebate under section 87A is restricted to a maximum amount which for FY 2018-19 is Rs 2500. If the computed tax payable is less than Rs 2,500, say Rs.1,500 the tax rebate shall be limited to that lower amount ie Rs 1,500. The Income Tax Rebate has been increased from Rs. 2500 to Rs. 12,500 in Budget 2019-20 and would be applicable from Financial Year 2019-20 onwards
  2. You need to file ITR to claim the Rebate.
  3. Rebate under Section 87A is only available to Individuals. All categories of Individuals whether Male or Female or Senior Citizens are eligible to claim Income Tax Rebate under Section 87A. Other types of assesses like HUF, Companies, Partnership Firms, LLP etc are not eligible to claim Income Tax Rebate under Section 87A.
  4. Income Tax Rebate under Section 87A is only available to Resident Individuals and not to Non-Resident Individuals.
  5. Income Tax Rebate is allowed before the levy of Education Cess and Secondary and Higher Education Cess(SHEC). In other words, Education Cess and SHEC would be levied on the tax payable after allowing for Income Tax Rebate.
  6. Total income before cess should not be more than a defined limit, which is 3.5 lakhs for FY 2018-19 but 5 lakh for FY 2019-20.
  7. There is no benefit of this Rebate to Super-Senior Citizens i.e. Individuals above 80 years of age as their Income up to Rs 5 Lakh is already exempted from the levy of Income
  8. Rebate is different from tax exemption.
    1. A tax exemption is when the income you earn does not attract tax ex: Agricultural income earned by the taxpayer in India is exempt from tax.
    2. A tax rebate is the amount of tax that an assessee is not liable to pay. 
    3. In the interim budget 2019-20 presented on 1 Feb 2019, the finance minister has announced a rebate and not an exemption. This means that people whose taxable income, after all the deductions, is higher than ₹5 lakh, the old tax rates will apply. For example, a person with taxable income of ₹10 lakh will pay a 5% tax on his taxable income between ₹2.5 lakh to ₹5 lakh.

Following table shows the maximum rebate and maximum income(after deductions) for a resident individual across various years. For filing the ITR for FY 2018-19 or AY 2019-20 the rebate is Rs 2500 as shown highlighted in yellow.

Financial Year Assessment Year Max Income Rebate under section 87A
FY 2019-20 AY 2020-21 5 lakhs 12,500
FY 2018-19 AY 2019-20 3.5 lakhs 2,500
FY 2017-18 AY 2018-19 3,5 lakhs 2,500
FY 2016-17 AY 2017-18 5 lakhs 5000
FY 2015-16 AY 2016-17 5 lakhs 2000
FY 2014-15 AY 2015-16 5 lakhs 2000
FY 2013-14 AY 2014-15 5 lakhs 2000

The image below compares Income Tax slabs, rebates for FY 2019-20 and FY 2018-19

Budget 2019-20 Income Tax savings across slabs

Budget 2019-20 Income Tax savings across slabs

Rebate for FY 2019-2020(AY 2020-21) as per Budget

You can claim a tax rebate of up to 12,500 if your total income(after deductions) is equal to less than 5 lakhs if you are a resident Individual including Senior Citizen. So to claim Rebate

  1. You must be a RESIDENT INDIVIDUAL
  2. Your Total Income, less Deductions, (under Section 80) is equal to or less than Rs 5 lakhs.
  3. The maximum rebate you can claim is Rs 12,500. This means that if the total tax payable is lower than Rs 12,500, then that amount will be the rebate under section 87A. This rebate is applied to the total tax before adding the Education Cess (4%).

Let’s see it with an example by computing tax liability of Shreya who has an income of Rs 4,00,000 and similar investments ie 50,000 in EPF and life insurance policy paying a premium. She is paying a home loan of Rs 50,000 in a year. Her income from other sources is Rs 15,000. As her taxable income comes less than 5 lakh she can claim a rebate of Rs 3250 only, though the maximum rebate amount is Rs 12,500. So her tax reduces by 3250 Rs and she has to pay no tax.

Description  Amount
Salary Income 4,00,000
Income from House Property -50,000
Income from Other Sources 15,000
Total Income 3,65,000
Deductions under 80C 50,000
Total Taxable Income 3,15,000
Exemption Limit 2,50,000
Tax on Income(@5%)

(5% of 3,15,000-2,50,000)

3250
Less Rebate(Max 12500) 3250
Total Tax Payable 0
Education Cess 0
Total Tax 0

Following are a few examples of the 87A rebate allowed to Resident Individuals including Senior Citizens:

Total Income Tax payable before cess Rebate u/s 87A Tax Payable + 4% Cess
2,70,000 1,000 1,000 0
3,60,000 3,000 3,000 0
5,40,000 20,500 0 21,320
12,00,000 1,72,500 0 1,79,400

Rebate for FY 2018-2019(AY 2019-20) under section 87A

You can claim tax rebate under this provision if you meet the following conditions:

  1. You must be a RESIDENT INDIVIDUAL; and
  2. Your Total Income, less Deductions, (under Section 80) is equal to or less than Rs 3.5 lakhs.
  3. The rebate is limited to Rs 2,500. This means that if the total tax payable is lower than Rs 2,500, then that amount will be the rebate under section 87A. This rebate is applied to the total tax before adding the Education Cess (4%).

Who gets the tax rebate under section 87A?

Benefit under section 87A is available only to the individual Resident, aged less than 80 years, earning net income up to Rs 5 lakhs.

The rebate will be available if one satisfies the following eligibilities.

  1. The Taxpayer is a resident individual( may be an ordinary resident or not ordinary resident) less than 80 years.
  2. The Total Income or taxable income (i.e. gross total income minus deductions under Section 80C to 80U) is Rs. 5,00,000 or less.

All the other assesses like HUF, AOP, BOI, Company, Trust, LLP, Partnership Firms etc. including individual NRIs are not eligible to claim tax rebate under section 87A.

Since when is the rebate provided under section 87A?

  • Rs 2000 rebate for total income up to 5 lakhs under was introduced from Financial Year 2013-14 (AY 2014-15) onwards.
  • The Income Tax Rebate was  increased from Rs. 2000 to Rs. 5000 for total income up to 5 lakhs in FY 2016-17.
  • The Income Tax Rebate was decreased to Rs. 2500 for total income up to 3.5 lakhs in FY 2017-18 and continued in FY 2018-19.
  • The Income Tax Rebate was increased to 12,500 for total income up to 5 lakhs in FY 2019-2020 as per Interim budget 2019-20.

What does total net income mean?

Total Net Income means the taxable Income less any tax deductions under 80C to 80U. Suppose your income comes to Rs. 5,70,000 and you do tax saving of Rs 1,00,000 under section 80C. The total net income in your case comes to Rs. 4,70,000 which makes you eligible to claim tax rebate under section 87A.

How much Income Tax Rebate can one claim under section 87A?

The tax rebate is only limited to the total tax payable subject to a maximum of Rs 2,000. So if the total tax payable comes to Rs 1,600 than the tax rebate would be restricted Rs 1,600 with no tax refund of the unused amount.

If I claim less than maximum limit under section 87A will I get a refund?

No, there will be no tax-refunds for unclaimed Rebate amount.

How is Income Tax Rebate under section 87A calculated?

The tax rebate under section 87A is to be deducted from the total tax payable. You are first required to

  • Sum  all incomes i.e. salary, house income, capital gains, business or profession income and income from other sources and
  • then deduct the eligible amount under 80C to 80U and under section 24(b) (Home Loan Interest) to come up with the net taxable income.

Examples of calculation of rebate under section 87A

For FY 2018-19, Rahul has a Salary of Rs. 3,50,000 p.a. He has put Rs 50,000 in EPF and life insurance policy for which he pays a premium. He is paying a home loan of Rs 50,000 in a year. His income from other sources is Rs 15,000.  So let’s Compute his tax liability. As after the deductions, taxable income comes to 2,65,000 and tax comes to 1500. So Rahul gets a tax rebate of Rs 1500, not Rs 2500.

Description  Amount
Salary Income 3,50,000
Income from House Property -50,000
Income from Other Sources 15,000
Total Income 3,15,000
Deductions under 80C 50,000
Total Taxable Income 2,65,000
Tax on Income(@5%) 750(10% of 2,65,000-2,500,000)
Less Rebate 750
Total Tax Payable 0

Example 2: For FY 2018-19 Shreya has the income of Rs 4,00,000 and similar investments ie 50,000 in EPF and life insurance policy for which she pays a premium. She is paying a home loan of Rs 50,000 in a year. Her income from other sources is Rs 15,000. As her taxable income comes less than 5 lakh she can claim a rebate of Rs 2000. So her tax reduces by 2000 Rs. But she has to pay balance tax of Rs 4500.

Description  Amount
Salary Income 4,00,000
Income from House Property -50,000
Income from Other Sources 15,000
Total Income 3,65,000
Deductions under 80C 50,000
Total Taxable Income 3,15,000
Tax on Income(@5%) 3250(5% of 3,15,000-2,500,000)
Less Rebate 2000
Total Tax Payable 750
Education Cess 30
Total Tax 780

Let’s compute tax liability of Srinivas who has an income of Rs 8,00,000 and has investments i.e 1,50,000 in EPF and life insurance policy paying premium and 15,000 in Medical Insurance. He is paying a home loan of Rs 1,50,000 in a year. His income from other sources is Rs 15,000. After deductions his Income comes to 5,00,000 hence he can also claim a rebate of Rs 12,500

Description  Amount
Salary Income 8,00,000
Income from House Property -1,50,000
Income from Other Sources 15,000
Total Income 6,65,000
Deductions under 80C 1,50,000
Deductions under 80D 15,000
Total Taxable Income 5,00,000
Tax on Income(@10%) 12,500(5% of 5,00,000-2,500,000)
Less Rebate 12,500
Total Tax Payable 0
Education Cess 0
Total Tax 0

How to Claim rebate under Section 87A?

One can claim the rebate under section 87A while filling the ITR. The rebate under section 87A, i.e., deduction from the tax payable would be the amount of tax payable itself or Rs, 2000, whichever is less and such rebate shall be claimed while filing the return just before adding the Education Cess, Secondary & Higher Education Cess. If you use the Efiling Excel Utility or Java Utility is it calculated automatically. A sample of ITR with 87A deductions for example of Srinivas is shown below for FY 2018-19 or AY 2019-20

Rebate under section 87A

Income Tax Rebate under section 87A in ITR

Is the rebate under section 87A also available in case of belated return i.e after the due date has gone?

Yes, you can claim Rebate under section 87A while filing ITR also. Rebate has nothing to do with time limit.

Can I claim Rebate if my Total income is more than 5 lakh?

As shown in the example of Srinivas above even if your total income is more than 5,00,00 and by claiming deductions under various sections you can bring down the taxable income to 5,00,000 you can claim Rebate of Rs 2,000. The section uses Total income, not Gross total income.

Can a senior citizen also claim rebate under section 87A?

Yes, Tax Rebate under section 87A  is also available to a senior citizen, if the total income is Rs. 5 Lakh or less. Effectively, it means, a senior citizen, both male and female, need not pay any tax on total income of up to Rs. 2,70,000. However, this benefit is not available to a super senior citizen (age 80 or above) as his total income up to Rs. 5 Lakh is already fully exempted.

What is the difference between Exemption, Rebate and Deduction?

Income Tax Rebate, Income Tax Deduction and Income Tax Exemption all reduce taxable income, they are similar terms but yet different.

Exemption means, your income is actually taxable but under some Income Tax section you can claim a portion of it as exemption ie not subject to tax. For example, an individual getting his salary from the employer is eligible for house rent allowance(HRA) exemption. This means, the HRA that he is getting is taxable but a portion of it will be deducted because of the exemption available. Similarly, an individual can also claim other exemptions like LTA (Leave Travel Allowance) exemption. Similarly, Income Tax Exemptions allowed to be claimed under head Capital Gains under Section 54, 54EC, 54F etc. So Income Tax Exemptions are those which are allowed to be claimed only from a specific source of Income and not from the Total Income. If you don’t claim it you won’t get it and the whole amount would be taxable.

Deductions are allowed to be claimed in case the taxpayer has incurred some specified expenditure or made specified investments. The best example of Income Tax deduction is section 80C where you claim a deduction for your investment in LIC, PPF, ELSS etc. To get this deduction you have to specifically make investments that are in section 80C irrespective of your type of income, salary income or income from business and profession. Difference between exemption and deduction is, while exemptions are deducted from their respective source as mentioned in the Income Tax Act 1961, deductions are deducted from Gross Taxable Income i.e. after taking all taxable incomes together. Examples of Income-tax deductions allowed are as follows:

Rebate is claimed from the total tax payable. While Income Tax Exemptions and Income Tax Deductions are claimed from the Income, Rebate is claimed from the Tax payable.

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