Rebate u/s 87A

To provide relief to taxpayers, the government had introduced the concept of rebate u/s 87A of the Income tax Act 1961. The new budget has brought about a substantial change in the rebate system. To be eligible for rebate in the AY 20-21, the following conditions must be satisfied:

•    You must be a Resident Individual
•     Your total income less any deductions under section 80C of the Act is not more than Rs 5 lakhs.

    The new rebate provided to you would be limited to Rs 12500.

Earlier for the AY 19-20, following conditions were to be satisfied for claiming rebate:

•    You must be a Resident Individual
•    Your total income less any deductions under section 80C of the Act is not more than Rs 3.5 lakhs.

    The rebate provided to you was limited to Rs 2500 only.

The calculation of rebate can be illustrated with the help of the following example

The total income of Mr. Raja less any deductions u/s 80C of the Act in the F.Y 2019-20 is Rs 340000. Assuming Mr. Raja is not a senior citizen, compute the rebate u/s 87A

The tax to be paid as per the slab rates would be

(Rs 340000-Rs 250000)*0.05= Rs 4500

The amount of Rs 4500 would be allowed as rebate as it is less than Rs 12500. Hence the tax payable by Mr. Raja for the AY 20-21 is 0. But if the tax was to be computed in accordance with the earlier provision, the tax payable before cess would have been Rs 2000 after subtracting the rebate of Rs 2500 from Rs 4500.

But supposing the total income of Mr Raja was Rs 600000

Then no rebate would be allowed as Rs 600000 is greater than amount specified in the condition i.e. Rs 500000

Then the tax to be payable before providing for cess, as per slab rates would be

(Rs 500000-Rs 250000)*0.05 + (Rs 600000-Rs 500000)*0.2=Rs 14500

Know more about Income Tax slab rates