Income Tax Rebate under Section 87A: A Complete Guide

As an Indian taxpayer, one of the best ways to reduce your tax burden is by claiming the income tax rebate under Section 87A. This rebate is designed to provide relief to individuals in the lower income tax slabs and ensures that people with a lower income are not overburdened with tax liabilities. If you qualify, this rebate can significantly lower your tax outflow.

In this blog, we’ll walk you through the key details of Section 87A, including who qualifies for the rebate, how it works, and how you can claim it.

What is Section 87A Rebate?

Section 87A of the Income Tax Act, 1961, offers a tax rebate to resident individuals whose total taxable income is below a specified limit. The rebate is available in addition to the regular income tax deductions and exemptions available to taxpayers.

It’s essentially a deduction from the total tax payable, and it reduces your overall tax liability.

Eligibility for Section 87A Rebate

To be eligible for the Section 87A rebate, you must meet the following criteria:

1. Resident Individuals Only: The rebate is available only to residents of India. Non-resident Indians (NRIs) are not eligible for this rebate.

2. Income Criteria: As per the latest tax provisions, the rebate is available to individuals whose total taxable income does not exceed ₹5,00,000 in a financial year. The income should be calculated after applying all other deductions under the Income Tax Act (like Section 80C, 80D, etc.).

3. Maximum Rebate Amount: The maximum rebate that can be claimed under Section 87A is ₹12,500. This means, if your taxable income is ₹5,00,000 or less, you can claim a full rebate of ₹12,500, reducing your income tax liability by the same amount.

How Section 87A Rebate Works

Here’s a simple explanation of how the rebate works:

1. Tax Calculation:

   • First, your total taxable income is calculated.

   • Then, you apply the appropriate income tax slab on that amount.

   • After calculating the tax payable, you subtract the rebate amount (₹12,500) from the calculated tax.

2. Example:

   Let's assume your total taxable income is ₹4,50,000 in the financial year. Here’s how the tax calculation would work:

   • Income: ₹4,50,000

   • Tax as per the income tax slabs:The income falls under the ₹2.5 lakh to ₹5 lakh category, where the tax rate is 5%.Tax on ₹4,50,000 = ₹4,50,000 × 5% = ₹22,500

   • Section 87A Rebate:As your total income is below ₹5,00,000, you are eligible for a rebate of ₹12,500.

   • Net Tax Payable:Tax Payable after Rebate = ₹22,500 - ₹12,500 = ₹10,000

   Therefore, your final tax payable will be ₹10,000.

3. Limitations:

   • If your income exceeds ₹5,00,000, the rebate under Section 87A is not applicable.

   • The rebate is limited to ₹12,500 even if your tax payable is higher than this amount. If your tax is ₹20,000, you can only claim a rebate of ₹12,500.

Section 87A Rebate for Different Taxpayers

Here’s a quick overview of how Section 87A applies to different individuals based on their taxable income:

Taxable Income	Rebate Under Section 87A
Up to ₹5,00,000	₹12,500
₹5,00,001 and above	Not eligible

For those earning up to ₹5,00,000, the rebate directly reduces the total tax liability, making it a valuable tool for taxpayers in the lower income bracket.

Tax Rebate under Section 87A and the New Tax Regime

Under the new tax regime introduced in Budget 2020, the income tax slabs are lower, but no deductions or exemptions (like 80C, 80D, etc.) are allowed. However, Section 87A rebate is still available under the new tax regime if your taxable income is up to ₹5,00,000.

This means that even if you opt for the new tax regime, you can still claim the ₹12,500 rebate if your total taxable income does not exceed ₹5,00,000.

Example:

• If your taxable income under the new tax regime is ₹4,80,000, you can claim a rebate of ₹12,500, reducing your overall tax liability to zero.

How to Claim the Section 87A Rebate

The rebate under Section 87A is automatically applied when you file your Income Tax Return (ITR). You do not need to apply separately for this rebate. It will be deducted from your total tax payable once you fill in your income details and the relevant tax calculation is done.

However, you must ensure that:

• You are a resident individual.

• Your total taxable income does not exceed ₹5,00,000.

• You have filed your ITR accurately, reflecting your total taxable income.

Important Considerations to Keep in Mind

1. No Rebate for NRIs: The Section 87A rebate is available only for resident individuals. NRIs (Non-Resident Indians) are not eligible for this rebate.

2. Income Must Be Below ₹5,00,000: If your taxable income exceeds ₹5,00,000, the rebate will not be available. In such cases, you must pay tax as per the applicable income tax slabs.

3. Rebate and Other Deductions: The rebate is applied after considering other deductions (such as those under Section 80C, 80D, etc.), so make sure to claim all eligible deductions to reduce your taxable income.

4. File Your Return on Time: The rebate is only available if you file your Income Tax Return (ITR) on time. Delayed filing may lead to penalties or interest.

Conclusion

The Section 87A rebate is a fantastic benefit for individuals whose total taxable income is ₹5,00,000 or less. It directly reduces your tax payable by ₹12,500, making it a valuable relief for taxpayers in the lower-income tax slabs. Even if you opt for the new tax regime, you can still benefit from this rebate, ensuring that your tax burden remains minimal.

Make sure to verify your taxable income, utilize the applicable exemptions and deductions, and file your tax return on time to ensure you can claim the full benefits of Section 87A.

If you are unsure about the process or need help with tax planning, consulting a tax professional can help you make the most of available rebates and deductions.

FAQs on Section 87A Rebate

1. Who is eligible for Section 87A?

   • Resident individuals with a taxable income of up to ₹5,00,000 are eligible for the rebate.

2. Can NRIs claim Section 87A?

   • No, Section 87A is available only to resident individuals.

3. How much is the rebate under Section 87A?

   • The maximum rebate you can claim is ₹12,500 if your taxable income is up to ₹5,00,000.

4. Is the rebate available under the new tax regime?

   • Yes, the rebate under Section 87A is available even if you opt for the new tax regime.

5. Can I claim other deductions and exemptions along with Section 87A?

   • Yes, you can claim deductions under Sections 80C, 80D, etc., and the Section 87A rebate will be applied after these deductions are accounted for.