The taxes paid by the citizens of India are utilized for the purpose of improving of the country’s economy. The Income Tax Department has created different tax slab rates for individuals with a different set of income. In order to make sure that the people with low taxable income do not get burdened with paying more taxes, the government has also set up provisions like claiming income tax rebate u/s 87A to reduce the tax liability of these people.
Under Section 87A of the Income Tax Act, 1961, resident individuals whose net taxable income is less or equal to INR 5,00,000 will be able to claim a tax rebate of a maximum of INR 12,500 or the amount of tax payable, whichever is lower.
Individuals can claim rebate u/s 87A if they fall under the following criteras:
Following are the steps to calculate the tax rebate amount:
To calculate the rebate amount one needs to add their incomes from all sources to arrive at Gross Total Income
Now reduce the tax liability by claiming all the applicable chapter VIA deductions
Arrive at your net taxable income after claiming the tax deductions
After applying all applicable deductions if your net taxable salary is less than or equal to INR 5,00,000 than you are eligible to claim a rebate under section 87A
Let us take an example to understand the calculations better:
Mr Kumar, age 45 is a salaried residential individual.
|Particulars for FY 20-21||Income|
|Gross Total Income||6,00,000|
|Net Taxable Income:||450,000|
|Tax Payable before cess(5% INR 2.5 to INR 5 lakh)||10,000|
|Tax Rebate u/s 87A (INR 12,500 or tax payable whichever is lower)||10,000|
No, only resident individuals can claim a rebate under this section. Companies and HUF cannot avail this benefit.
No, individuals are entitled to claim tax rebate u/s 87A of INR 12,500 or 100% of tax liability amount whichever is lower