Income Tax Rebate under Section 87A was introduced by P. Chidambaram while presenting Budget 2013 and this Income Tax Rebate is applicable from Financial Year 2013-14, or in other words from Assessment year 2014-15.
P. Chidambaram while announcing the Budget 2016 introduced an Income Tax Rebate of Rs. 2,000 for people earning income below Rs. 5 Lakh. It is important to note here that Section 87A does not impact the Income Tax Slabs, and is a Rebate under Section 87A of Rs. 2,000.
- Recommended Read: Income Tax Slab Rate
This Income Tax Rebate has been increased from Rs. 2000 to Rs. 5000 in Budget 2016 and would be applicable from Financial Year 2016-17 onwards.
Section 87A provides for Income Tax Rebate of Rs. 2,000 to Individuals earning Income below Rs. 5 Lakh. This Rebate of Rs. 2,000 would be given from the Total Tax payable by an Individual. It is pertinent to note here that this Rs. 2,000 is to be subtracted from the Total Tax Payable and not from the Total Income of an Individual.
- Recommended Read: Difference between Income Tax Deduction vs Rebate vs Relief
Section 87A: Income Tax Rebate
As Section 87A provides for Income Tax Rebate, the taxpayer will first compute the Total Tax Payable and then reduce Rs. 2,000 from this Tax payable provided his Total Income is less than Rs. 5 Lakh. If his Total Income is more than Rs. 5 Lakh, the taxpayer won’t be able to claim income tax rebate under Section 87A.
- The Net Taxable Income of Rs. 5 Lakh is the sum total of incomes under all heads i.e. Salary, House Property, Business or Profession, Capital Gains and Other Sources.
- In case there is any loss under any head due to payment of housing loan or for any other reason, such loss would also be reduced from the total income.
- Deductions from Section 80C to Section 80U under Chapter VI-A would also be allowed and the resultant figure i.e. Total Income should be less than Rs. 5 Lakh for an individual to claim income tax rebate of Rs. 2,000 under Section 87A.
The above points have been represented below showing the manner of computation:-
Salient Features of Income Tax Rebate under Section 87A
The following are the salient features of Income Tax Rebate under Section 87A:-
- Rebate under Section 87A is only available to Individuals. All categories of Individuals whether Male or Female or Senior Citizens are eligible to claim Income Tax Rebate under Section 87A. Other types of assesses like HUF, Companies, Partnership Firms, LLP etc are not eligible to claim Income Tax Rebate under Section 87A.
- Income Tax Rebate under Section 87A is only available to Resident Individuals and not to Non-Resident Individuals. (Recommended Read: How to compute Residential Status)
- The total rebate allowed under section 87A would be Rs. 2,000 or the total tax payable (whichever is less)
- Income Tax Rebate of Rs. 2000 is allowed before the levy of Education Cess and SHEC. In other words, Education Cess and SHEC would be levied on the tax payable after allowing for Income Tax Rebate of Rs. 2000
- There is no benefit of this Rebate to Super-Senior Citizens i.e. Individuals above 80 years of age as their Income up to Rs 5 Lakh is already exempted from the levy of Income Tax.