No change has been introduced in the Rebate u/s 87A via the Budget 2020.
What is rebate under section 87a, It is introduced for the individual to participate and encourage the individual to fill income tax return. In this article, you will get a Complete Guide on Rebate under Section 87A to Individuals.
Tax rebate is a bonus deduction for the taxpayer from their tax amount up to or equal to the specific tax amount. Tax rebate is allowed for the individual after all income tax calculation rather than a deduction from total income.
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Under section 87A, the individual is allowed to rebate income tax maximum up to ₹ 12500 from FY2019 -20. (Previously it was ₹ 2500, which is amended in Budget 2019)
What is Income tax rebate u/s 87A?
Income tax rebate u/s 87a is introduced in the 2013 financial bill, which is further amended in the year 2017 and further amended in Budget 2019.
This amendment will be effective from 1st April 2020.
According to the section if the individual earning more then ₹ 5,00,000 (after all deduction), accordingly the individual is entitled to tax payment ₹ 12500.
Under section 87A the individual will get tax exemption maximum up to ₹ 12500. The tax liability comes to be nil.
The only individual will get the rebate benefit u/s 87A, HUFs or firms, or companies will not be entitled to this section.
Note: Senior Citizens (above the age of 60 years and less than 80 years) are also entited to take benefit for a rebate under Section 87A.
Silent features of Income-tax rebate under section 87A
Here are some of the salient features of Income-tax rebate under section 87a:
- All individual male-female including senior citizen is entitled to avail the benefit of section 87a.
- Other than individuals, HUFs, companies, partnership firms, etc are not eligible under section 87A.
- Income Tax rebate u/s 87a is available for resident individual or nonresident individual.
- The amount of tax rebate u/s 87A is restricted to a maximum of ₹ 12,500. In case the tax computed payable is less than ₹ 12,500, say ₹ 10,000 the tax rebate shall be limited to that lower amount i.e. ₹ 10,000 only.
Also Read: What is Form 15G Form 15H?
Difference between exemption and deduction and rebate
If you look closely all these tax seems similar but they all are totally different from each other. All three are beneficial for the taxpayer, Let’s understand how:
Tax exemption is allowed to deduct the from a specific source of income like HRA, Gratuity & LTA, etc.
Income Tax Deduction
The tax deduction is common terms which are directly linked to specific kind of expenditure and investments, like 80C and health-related investments insurance premium, health checkup u/s 80D, 80E for Education related, 80TTA/80TTB for bank interest and many more.
Income tax rebate
Also known as tax credit u/s 87a, it is a refund on taxes when the liability on tax is less than the tax paid or liable to pay, by the individual is referred to as Income Tax Rebate. currently, the rebate u/s 87A is INR 12,500.
source: economic times
How to calculate rebate u/s 87A?
Calculation of income tax rebate for senior citizen as well as individuals both get the benefit of section 87A, here is a calculation table for transparency.
How to claim rebate under section 87a?
- Calculate your Gross Total Income (GTI).
- Deduct Standard Deduction
- Reduce the deductions under sections 80C to 80U (if Applicable)
- Freeze Net Total Income (NTI)
- Calculate your Tax Payable as per Income Tax slabs.
- Finally, Deduct the amount of rebate allowed under section 87A.
- On your balance tax payable (if any) calculate the amount of Health and Education Cess payable @ 4%.
Note: It is very important to avail the benefit of 87a your NTI will not exceed with a single penny.
Historical Changes of Income-tax rebate under section 87A
Previously the taxpayer is allowed to deduct ₹ 2500, basically taxable income up to ₹ 3,50,000, the tax comes out to be ₹ 2500, which is deducted u/s 87A, If the total income is more then ₹ 3,50,000, the taxpayer won’t be able to claim a tax rebate.
From FY 2019-20 [AY 2020-21] the deduction os allowed by ₹ 12500, and the taxable income up to ₹ 5 Lakhs is tax-free.
Important Note:- If your taxable income after all deduction climb with ₹ 10 only, it will cross the border exempted limit of ₹ 5 Lakhs. So make sure to keep your taxable planning accordingly.
Income-tax rebate under section 87A is the added premium to the tax-payers which comes to the drastic change in Budget 2019 by 500% of the increase.
Here you can understand the historical changes year by year: