Income Tax Rebate Under Section 87A

Income Tax Rebate under section 87A for FY 2019-20, AY 2020-21

Updated on

Budget 2021 update :It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.
A rebate under section 87A is one of the income tax provisions that help taxpayers reduce their income tax liability. You can claim an income tax rebate under section 87A if your total income does not exceed Rs 5 lakh in a financial year. Your income tax liability becomes nil after claiming the rebate under section 87A.

Let’s understand the rebate available under section 87A in detail:

Budget-2019-middle-class

1. Steps to claim a tax rebate under section 87A

  1. Calculate your gross total income for the financial year
  2. Reduce your tax deductions for tax savings, investments etc.
  3. Arrive at your total income after reducing the tax deductions.
  4. File an income tax return declaring your gross income and tax deductions.
  5. Claim a tax rebate under section 87A if your total income does not exceed Rs 5 lakh.
  6. The maximum rebate under section 87A for the AY 2020-21 is Rs 12,500.
An example of the calculation of rebate under section 87A in the case of an individual who is below 60 years of age for AY 2020-21

Source of income (FY 2019-20) Income (Rs)
Salary 6,50,000
Less: Standard deduction 50,000 6,00,000
Interest on fixed deposit 50,000
Gross total income 6,50,000
Less: Deduction under section 80C 1,50,000
Total income 5,00,000
Income-tax (@ 5% from Rs 2.5 to 5 lakh) 12,500
Less: Rebate u/s 87A 12,500
NIL

You can claim deduction under section 80C for tax-saving, 80D for medical insurance, 80CCD for contribution to NPS, 80G for donations and other deductions to arrive at your total income.

2. Eligibility to claim rebate u/s 87A FY 2018-19 and FY 2017-18

You can claim the benefit of rebate under section 87A for FY 2020-21 only if the following conditions are satisfied:
  1. You are a resident individual
  2. Your total income after reducing the deductions under chapter VI-A (Section 80C, 80D and so on) does not exceed Rs 5 lakh in a FY
The tax rebate is limited to Rs 12,500. This means, if your total tax payable is less than Rs 12,500, then you will not have to pay any tax. Do note that the rebate will be applied to the total tax before adding the health and education cess of 4%. Here are a few examples of section 87A rebates for resident individuals including senior citizens:  
Total Income (Rs) Tax payable before cess (Rs) Rebate u/s 87A (Rs) Tax Payable + 4% Cess (Rs)
2,70,000 1,000 1,000 0
3,60,000 3,000 3,000 0
4,90,000 12,000 12,000 0
12,00,000 1,72,500 0 1,79,400

3. Eligibility to claim rebate u/s 87A FY 2018-19 and FY 2017-18

If you are filing income tax returns for FY 2017-18 or FY 2018-19, the eligibility criteria to claim tax rebate under section 87A are as follows:
  1. You are a resident individual
  2. Your total income after deductions under chapter VI-A (Section 80C, 80D, 80E and so on) is less than Rs 3.5 lakh
  3. The amount of tax rebate is limited to Rs 2,500. So, if your total tax payable does not exceed Rs 2,500, then you will not have to pay any tax.

    Do note that the tax rebate will be applied to the total tax before adding the health and education cess of 4% (FY 2018-19) or education cess of 3% (FY 2017-18).

Here are a few examples of section 87A rebates for resident individuals including senior citizens for FY 2018-19:

 

Total Income (Rs)

Tax payable before cess (Rs)

Rebate u/s 87A (Rs)

Tax Payable + 4% Cess (Rs)

2,65,000

750

750

0

2,70,000

1,000

1,000

0

3,00,000

2,500

2,500

0

3,50,000

5,000

2,500

2,500+100=2600

Here are a few examples of section 87A rebates for resident individuals including senior citizens for FY 2017-18:  
Total Income (Rs) Tax payable before cess (Rs) Rebate u/s 87A (Rs) Tax Payable + 3% Cess (Rs)
2,65,000 750 750 0
2,70,000 1,000 1,000 0
3,00,000 2,500 2,500 0
3,50,000 5,000 2,500 2,500+75= 2,575
 

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4. Frequently Asked Questions

Can NRIs claim rebate under section 87A?
No, this rebate is only allowed for resident individuals. Therefore, taxpayers qualifying as non-residents are not eligible for a rebate under 87A.
Can this rebate be claimed by anyone?
This rebate is only allowed to individuals. HUFs or firms or companies cannot claim this rebate.
How can I claim section 87A rebate in ClearTax Software?
ClearTax e-filing software automatically gives the rebate while e-filing, if you are eligible.
How to claim rebate u/s 87A?
Only resident individuals can claim tax rebate u/s 87A, which means HUF and firms cannot claim this rebate. This rebate can be claimed while filing ITR return. For FY 2019-20, If you are paying self assessment tax and your income is less than Rs 5 lakh after claiming deductions under Chapter VI-A, you can claim rebate of full tax upto rs 12500. In case your income is subject to TDS , but your total income after chapter VI-A deductions is less than VI-A, you can claim rebate u/s 87A while filing return and you will receive a refund of TDS paid upto Rs 12,500.
How to calculate rebate u/s 87a?
Section 87A provides tax rebate to the individual taxpayers if their total income is less than Rs 5 Lakhs after claiming deductions. Hence , firstly taxable income after deductions is to be determined to check the eligibility of the rebate.
  • Calculate your gross total income and reduce deductions under section 80C to 80U. If the same is below Rs 5 lakh then you are eligible for tax rebate i.e full tax upto Rs 12500 will be deducted as per section 87A
  • If taxable income is more than Rs 5 lakh, then no rebate can be claimed