Section 87A of the Income Tax Act

Section 87A of the Income Tax Act allows taxpayers to claim a rebate on the payable income tax and reduce tax liability. You can claim the tax rebate if your taxable income is less than Rs 5 lakh. Your tax liability becomes nil with the said rebate u/s 87A if your income, after adjusting Chapter VIA deductions, is below Rs 5 lakh. We will learn everything related to the Section 87A rebate or rebate under Section 87A and how you can enjoy the same.

Rebate Under Section 87A for AY 2021 22/FY 2020 21

Taxpayers with income up to Rs 5 lakh can claim a tax rebate of up to Rs 12,500 for AY 2021-22 or as 87A rebate for FY 2020-21. This means that if your annual income attracts a tax of Rs 12,500 or less, you can claim a rebate under 87A and reduce your tax liability to nil. Let us understand this with an example:

Suppose Ankit has a gross annual income of Rs 7 lakhs. He can claim several deductions such as investments and expenses eligible under Section 80C, medical insurance premiums paid under Section 80D, donations given under Section 80G, house rent paid under Section 80GG, interest paid under Section 80EE, and other deductions that altogether amount to Rs 2 lakhs. By doing this, he reduces his taxable annual income to Rs 5 lakhs. The table below shows how the tax rebate u/s 87A is applicable for Ankit.

How to Calculate Tax Rebate Under Section 87A

Calculating the rebate under Section 87A Income Tax Act is easy. You just need to check whether your income after subtracting applicable deductions is below Rs 5 lakhs or not. Follow these simple steps to know the applicable tax and rebate that you can avail:

1. Calculate your gross total annual income for the financial year for which you will be filing ITR.
2. Know all the deductions that you can show in the ITR. Make sure you know all the investments, donations, and other applicable deductions that you can use to reduce your annual income.
3. Subtract the applicable deductions from the gross income. This will give you the net taxable income.
4. If your income is below 5 lakhs (for relevant financial years), you will not have to pay any tax. On the other hand, if your income is above 5 lakhs, you will have to pay the applicable tax amount.

Key Things to Know About Tax Rebate Under Section 87A

• Only resident individuals can claim the tax rebate under Section 87A.
• The maximum rebate amount of Rs 12,500 is for resident individuals under 60 years of age. However, senior citizens aged between 60 and 80 years can also claim a tax rebate under Section 87A.
• Super senior citizens, i.e; individuals over 80 years of age are not eligible to claim rebate under Section 87A.
• The rebate amount of Rs 12,500 is the maximum amount that one can claim under Section 87A. If your annual income attracts a tax lower than the maximum rebate amount, the rebate will also be the same.
• Both old and new tax regimes come under Section 87A.
• The tax rebate is applicable before considering a health and education cess of 4%.

Income Eligible for Tax Rebate Under Section 87A

• Normal income earned by the taxpayer 
• Long term capital gains (LTCG) as applicable under Section 112
• Short term capital gains (STCG) as applicable under Section 111A

You can use all the aforementioned income to get your gross annual income.

Eligibility to Claim Tax Rebate For Different Tax Regimes (For Taxpayers Below 60 Years of Age)

The income tax slabs for different tax regimes are different. Thereby, the eligibility criteria for the tax regimes also differ from each other. 

FY 2020-21 and FY 2019-20

• The taxpayer should be a resident individual
• The taxable income of the taxpayer, i.e. income after subtracting applicable deductions, should not be more than Rs 5 lakhs

FY 2018-19 and FY 2017-18

• The taxpayer should be a resident individual
• The taxable income of the taxpayer, i.e. income after subtracting applicable deductions, should not be more than Rs 3.5 lakhs

Section 87A Maximum Rebate Limit for Different Financial Years

Here is the list for maximum income eligible for the tax rebate and maximum tax rebate applicable to each financial year: