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Section 87A

Rebate Under Section 87A

Last Updated 13th May 2021

  • Section 87A reduces the income tax liability of the taxpayers.
  • Under this section, income holders with up to ₹ 5 Lakh income per year are granted full tax rebate.
  • A maximum rebate of ₹ 12,500 can be availed under this section.
  • Thus, if you pay income tax upto ₹ 12,500, then you don't have to pay it anymore as per sec 87a.
  • If tax is already deducted as TDS , then you may claim the income tax rebate while filing the IT return.
INCOME TAX CALCULATOR

Tax Rebate under Section 87A for FY 2020 - 21

Section 87A under the Income Tax Act was highlighted in the interim budget announced for 2019-2020, that functions to reduce the income tax liability of the taxpayers. As per this income tax clause, income holders with up to ₹ 5 Lakh income per year are granted full tax rebate. This means that the maximum rebate amount has been increased to ₹ 12,500 from that of ₹ 2,500. Therefore, if you pay income tax upto ₹ 12,500, then you don't have to pay it anymore. However, in the case of net income more than ₹ 5 Lakh, the rebate amount will be zero.

Eligibility Criteria for Claiming Income Tax Rebate Under Sec 87A for FY 2020 - 21

As per the budget announced for FY 2020-21, the eligibility criteria to avail income tax rebate under section 87a is listed as follows:

  • The taxpayer must be an Indian resident.
  • The total net taxable income of the taxpayer should not exceed ₹ 5 Lakh per year.
  • In addition to that, it must be noted that tax rebate, in this case, is applicable to the total tax before adding the health and education cess of 4%.

How the new Section 87A limit will work?

The functioning of the rebate under 87a income tax act can be understood with the illustrative table mentioned below:

Net Income Income Tax Rebate as per sec 87 a Tax payable
Up to ₹ 3 Lakh ₹ 2,500 ₹ 2,500 0
₹ 4 Lakh ₹ 7,500 ₹ 7,500 0
₹ 5 Lakh ₹ 12,500 ₹ 12,500 0
₹ 5.50 Lakh ₹ 22,500 0 ₹ 22,500
₹ 1.20 Lakh ₹ 1,72,500 0 ₹ 1,72,500

In the above illustration, it is clearly understood that individuals earning income up to ₹ 5 Lakh are not required to pay tax anymore, as they can avail a complete tax rebate of ₹ 12,500 as per section 87a. However, any income above ₹ 5 Lakh is not eligible for a tax rebate, and thereby such income holders are required to pay tax as per the slab tax percentage.

What if the tax is already deducted as TDS?

In case the tax is already deducted as TDS or tax-deductible at source, then you may claim the income tax rebate while filing the Income-tax return as you are not liable to pay any tax if you earn less than ₹ 5 Lakh a year.

How to claim the refund under Section 87A?

You can claim for refund as per section 87a rebate clause of the Income Tax Act, 1961 only when the income is less than ₹ 5 Lakh, and tax liability is more than ₹ 2,000. The rebate as per section 87a can be claimed while filing the tax return before adding education cess such as secondary or the higher education cess.

FAQs

What is Section 87A in income tax?

Section 87A was introduced under the Finance Act, 2013. However, it grabbed attention while the announcement of the interim budget of 2019-2020. As per this section, the tax rebate has been increased to ₹ 12,500 from ₹ 2,500, for income earners upto ₹ 5 Lakh under 87a income tax clause. Thus the taxpaying liability has been reduced.

How is Section 87a rebate calculated?

The rebate for section 87a is calculated based on the net income of an individual. For all individuals earning net income up to ₹ 5 Lakh, the taxpaying liability has been removed. Thus, if you have been paying taxes up to ₹ 12,500, then you do not need to pay tax. However, any income amount beyond ₹ 5 Lakh is liable to pay the tax without any rebate.

What is the rebate for AY 2020 21?

The maximum rebate announced for AY 2020-21 is ₹ 12,500 for income up to ₹ 5 Lakh per annum.

What is a relief for us 87a?

Section 87a of the income tax act provides relief for taxpayers who have been paying tax upto ₹ 12,500. As per this section, if you have had your income tax amounting to upto ₹ 12,500, you are not eligible to pay tax anymore, based on your net income amount. This is because as per sec 87a, tax relief has been granted to income earners earning up to ₹ 50,000 per year.


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