Tax Rebate u/s 87A

The Finance Act, 2013 implemented a new Section 87A of Income Tax Act in order to offer tax rebate to the taxpayers who come under 10% income tax slab. The tax rebate u/s 87A can be availed by a person from Financial Year 2013-14. Thus,rebate can be availed from taxes imposed on the income earned during financial year 2013-14.

Who are eligible to claim tax rebate u/s 87A?

The rebate under Section 87A is available, if the below mentioned conditions are satisfied :

  • The person should be the resident of India.
  • The rebate is available only to Individual assessees. Thus HUF’s or Association of person do not qualify for section 87A rebate.
  • The Gross Total Income less deductions u/s 80 is equal or lower than Rs 5,00,000.

Hence, if the conditions mentioned above are satisfied, then rebate of Rs. 2,000 would be available under Section 87A.

Eligible amount of rebate under Section 87A

It is Lower of the following :

  1. Amount of Income Tax calculated as per the income tax slabs without education cess.
  2. Rs. 2000/-.

How to calculate rebate under Section 87A?

Here are the steps involved in calculating Section 87A rebate :

Step 1 : Total up all the incomes earned from different sources as per the income tax law.

Step 2 : If there is any kind of loss in any head owing to the payment of housing loan or other reason, then such amount of loss will be subtracted from total income.

Step 3 : The deductions ranging from Section 80C up to Section 80U in Chapter VI-A will as well be subtracted from Gross total income as computed in step to arrive at Taxable Income.

Step 4 : If the Taxable Income is Rs. 5 Lacs or less than the person is eligible for rebate under Section 87A and he has to follow Step 5 else he will be denied for tax rebate.

Step 5 : Calculate income tax on Taxable Income as per slab rates or as per special rates for special incomes. Remember, don’t add education cess or surcharge to the tax arrived at this step.

Step 6 : Eligible amount of Section 87A rebate is Rs. 2,000 or income tax calculated whichever is lower.

Step 7 : Subtract rebate u/s 87A as computed in Step 6 from the Tax calculated in step 5 to arrive at the reduced figure of income tax after rebate.

Section 87A rebate calculation example :

Case 1 : If the taxable income of Mr. Ravi in F.Y. 2014-15, is Rs. 5, 10,000/- then he is not allowed to claim rebate under Section 87A as his income has exceeded Rs. 5 Lacs.

Case 2 : If the taxable income of Mrs. Priya for F.Y. 2014-15 is Rs. 4, 60,000/- then the tax calculated will be Rs. 21,000. Since the lower of Tax i.e. Rs. 21,000 and Rs.2,000 is allowed as tax rebate so Rs. 2,000 is the amount of Section 87A rebate and the tax liability is reduced to 19,000/- [Rs. 21000 – Rs. 2000].

Case 3 : For F.Y. 2014-15 the tax on income of Rs. 2,60,000/- of Mr. Ram is Rs. 1,000. Since the lower of tax i.e. Rs. 1,000 and Rs.2,000 is allowed as tax rebate so Rs. 1,000 is the amount of Rebate u/s 87A and the tax liability is reduced to Nil [Rs. 1000 – Rs. 1000].

How to claim rebate under Section 87A?

If a taxpayer falls under 2-5 lakhs slab, then he or she can claim this rebate at the time of filing of income tax returns. This in turn will drop off the tax liability by that particular amount. Ideally, if he or she is a salaried employee and entitled for this rebate, the company must consider this at the time of deducting TDS. On the other hand, if they do not make available advantage of this rebate, they can claim this whilst filing of Income Tax Returns.

Tax Exemption under Section 80C May 15, 2015

Section 80CCC of Income Tax Act May 15, 2015

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