Section 87A of the Income Tax Act: Guide to How To Claim Rebate U S 87A

The Income Tax Act, 1961 allows different types of tax-saving provisions so that taxpayers can reduce their taxable income and, consequently, their tax liability. One such provision provided by the Income Tax Act is the tax rebate which is allowed under Section 87A of the Act. Let’s understand what this rebate is all about

What is tax rebate u/s 87A?

A tax rebate is a type of discount offered on your tax liability. If your annual income, net of deductions and exemptions, does not exceed INR 5 lakhs, you can claim a tax rebate under 87A on your tax liability. Through the available tax rebate under Section 87A, your tax liability becomes nil if your net annual income is within INR 5 lakhs.

Eligible amount of rebate u/s 87A

The eligible amount of rebate u/s 87A would be lower of the two

• The amount of tax payable, or
• INR 12,500

By applying the amount of tax rebate, your tax liability would become zero.

Things to remember when claiming a tax rebate under 87A

The available tax rebate under Section 87A of the Income Tax Act, 1961 offers the benefit of nil taxation if you have a limited income. However, before claiming the rebate, here are a few things that you should remember

• Resident Indian taxpayers can only avail of the rebate under Section 87A
• The rebate would be applicable on the tax liability calculated before the health and education cess
• Taxpayers below 60 years of age and those between 60 and 80 years of age can claim this rebate
• Taxpayers aged 80 years and above, i.e. super senior citizens, cannot avail of the rebate
• You can claim the rebate under either the old or the new tax regime
• If your tax liability is lower than the amount of rebate, you would not be eligible for any refund. In such cases, the rebate would be equal to the tax liability calculated.
• The rebate is available only if your taxable income is up to INR 5 lakhs. If your taxable income exceeds INR 5 lakhs, you would have to pay tax on the total income without any rebate.

How can you claim the tax rebate u/s 87A from your income?

Here are the detailed steps in which you can claim the available tax rebate on your tax liability

• List down all the incomes that you have earned in a financial year and categorize them into relevant heads.
• Aggregate the total income that you have earned from all sources
• Deduct the eligible deductions and exemptions from the income to find the net taxable income
• Calculate the tax liability on your net taxable income if it is above the threshold limit of INR 2.5 lakhs
• If your net taxable income is INR 5 lakhs or below, claim a rebate of the tax liability calculated or INR 12,500, whichever is lower

Example 1

Let’s assume that your annual income is INR 7.25 lakhs. You invested INR 1.5 lakhs in Section 80C investments, INR 50,000 in the NPS scheme and INR 25,000 in a health insurance policy. Here’s how you would be able to claim a tax rebate

Example 2

Suppose your annual income is INR 6.5 lakhs and you invest INR 1.5 lakhs in Section 80C and pay health insurance premiums of INR 25,000. In this case, the tax rebate under Section 87A would be calculated as follows

Eligibility criteria to claim a rebate under Section 87A

To claim the tax rebate u/s 87A, the following eligibility criteria should be met

• You should be a resident Indian taxpayer
• Your age should not exceed 80 years
• Your net taxable income, i.e. income after eligible deductions and exemptions, should be up to INR 5 lakhs

For example, consider these two scenarios

In scenario A, the net taxable income is INR 5 lakhs. In this case, a rebate would be allowed. However, in scenario B, the taxable income exceeds INR 5 lakhs. As such, no rebate under 87A would be allowed. You would have to pay taxes on the net taxable income of INR 5.5 lakhs.

Limit of rebate under Section 87A for different financial years

The eligible amount of tax rebate u/s 87A has undergone changes over the past financial years. Have a look at the applicable rates of rebate under 87A over the different financial years in India –

So, when you file your income tax returns, understand what tax rebate means, when it is applicable and how you can use it to reduce your tax liability to zero.

Alternative modes of saving taxes

In order to make your income below the INR 5 lakh limit to claim the Section 87A rebate, you can claim deductions under various sections of the Income Tax Act, 1961. Some of the most effective ways of lowering your net taxable income include the following

• Invest in a life insurance plan. The premiums paid to qualify for deduction under Section 80C up to INR 1.5 lakhs
• Invest in health insurance plans for yourself and your parents. The premiums paid to qualify for deduction under Section 80D. You can claim a maximum deduction of INR 1 lakh on the premium paid.
• Other avenues which provide 80C benefit include PPF, ELSS schemes, NSC, 5-year fixed deposits with banks or post offices, etc.
• Invest in a house. A home loan gives dual tax benefits under Section 80C and 24(b)
• Invest in the NPS scheme to claim an additional deduction of INR 50,000 under Section 80CCD (1B)

Ensure that your taxable income falls within the limit of INR 5 lakhs so that you become eligible to claim the rebate under Section 87A.