As we all are aware that, there is an amendment under section 87A i.e Rebate of Income Tax which is meant for Assessee being an individual resident in India could help small tax payers to cut out on Taxes marginally. This article covers the rebate applicability, its limit for AY 2019-20 and AY 2020-21 alongwith examples.

1. Extract of Section 87A of Income Tax Act, 1961

“An assessee being an individual resident in India, whose total Income does not exceed Rupees Three Lakhs Fifty Thousand (Refer Note 1), shall be entitled to a deduction, from the amount of income tax (as computed before allowing deductions under this chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of Rs. Two thousand five hundred (Refer Note 2), whichever is less.”

Note 1: For AY 2020-21, the words “five lakhs” shall be substituted for “three lakhs fifty thousand”

Note 2: For AY 2020-21, the words “twelve thousand and five hundred” shall be substituted for “two thousand and five hundred”

Rebate. Wooden letters on dark background

2. Certain basic conditions for availing rebate U/s 87A:

a) Assessee must be a Resident Individual; and

b) His Total Income after Deductions (under Chapter VIA) doesn’t exceed Rs 3.5 lakh for AY 2019-20 and Rs 5 lakhs for AY 2020-21.

c) The rebate is limited to Rs 2500 or Rs 12,500 for AY 2019-20 and AY 2020-21 respectively. This means that if the total tax payable is lower than prescribed limit, then that amount will be the rebate under section 87A. This rebate is applied to the total tax before adding the Education Cess (4%).

3. Some Examples for Better Understanding:

F.Y. 2018 – 2019 (A.Y. 2019 – 2020)

Total Income Tax payable before cess Rebate u/s 87A Tax Payable + 4% Cess
2,75,000  1250  1250 0
3,00,000 2,500 2,500 0
 3,50,000 5,000  2,500  2,500+100 = 2,600

F.Y. 2019 – 2020 (A.Y. 2020 – 2021)

Total Income Tax payable before cess Rebate u/s 87A Tax Payable + 4% Cess
2,75,000  1250  1250 0
3,00,000 2,500 2,500 0
4,90,000 12,000 12,000 0
10,00,000 1,12,500 0 1,12,500 +4,500 = 1,17,000

(Republished with Amendment)

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6 Comments

  1. Avinash Vishnu Bhadkamkar says:

    If taxable income is Rs.500100/-, then Income tax payable is Rs.12520/-(12500+20) + cess 4% as the individual will not be eligible for 87 A rebate. Is this correct? If yes, by earning Rs.100/- his net pay is reduced by Rs.12520/-. The Marginal Relief clause applicable for surcharge is not considered for this case?

  2. Parthweb says:

    Hello Navya,

    It means the same refer the bare act for clarification.
    I guess my post has been edited accordingly.

    Thank You.

  3. Navya says:

    You have mentioned (An assessee being an individual resident in India, whose total Income does not exceed [three hundred and fifty thousand rupees],)

    It should be Three Lakhs and fifty thousand

  4. Navya says:

    You have mentioned( An assessee being an individual resident in India, whose total Income does not exceed [three hundred and fifty thousand rupees])

    It should be three lakhs and fifty thousand rupees

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