To encourage savings on the part of taxpayers, the Income Tax Department of the country has introduced various tax-saving instruments. One such tax-exemption option is Section 87A that allows tax rebates exclusively for those whose net taxable income does not exceed Rs.5 lakh.
The income tax rebate offered under Section 87A was first introduced in 2013 and has been recently updated in 2019. Here’s a quick look at the income tax rebate applicable under Section 87A.
What is the income tax rebate under Section 87A?
Income tax rebate refers to a kind of concession offered to you on your income tax liability. Under Section 87A, you are eligible to claim a discount of the amount of tax payable or Rs.12,500, whichever is lower, on your tax liability if your net taxable annual income does not exceed Rs.5 lakh. With the help of Section 87A, you can reduce your tax liability to zero if your income isn’t more than 5 lakhs.
Who is eligible to claim an income tax rebate under Section 87A?
You qualify for a tax exemption of up to Rs.12,500 under Section 87A for FY 2020-21 if you fulfill the following criteria:
- If you are a resident of India and not an NRI
- If your gross income after you deduct exemptions under chapter VI-A (Section 80C, 80D, 80CCD, etc) is not more than Rs 5 lakh annually
What is the claim process?
Step-by-step guidance at how you can claim the tax rebate under Section 80A is as follows:
- Jot down all your incomes earned from different sources within the financial year
- Classify them under different suitable banner heads
- Add your overall income
- Subtract the other applicable tax exemptions under various other sections, such as 80C, 80CCC, 80D, 80CCD, etc from the total income that you have calculated. This helps you find out the net taxable income.
- Figure out your tax liability if your net taxable income is more than Rs.2.5 lakh
- In case your net taxable income is either Rs.5 lakh or less, you are eligible to claim a discount on your tax liability. The discounted amount could either be the calculated tax liability or a maximum of Rs.12,500, whichever is less.
The following examples may help you understand tax rebate under Section 80A better:
- 1st scenario
| Gross taxable income | Rs.8 lakh |
| Deductions under other tax-saving sections | Rs.1.5 lakh (Section 80C)Rs.50,000 for NPS [Section 80CCD(1b)]Rs.25,000 for medical expenses (Section 80D)Rs. 75,000 donations for Prime Minister’s National Relief Fund (Section 80G) |
| Net taxable income | Rs.5 lakh |
| Tax liability amounting to 5% of the amount above Rs.2.5 lakh | Here it is Rs.2.5 lakhTherefore, 5% of Rs.2.5 lakh = Rs.12,500 |
| Maximum income tax rebate that you can claim | Rs.12,500 |
| Amount of tax that is payable post deduction | Zero |
- 2nd scenario
| Gross taxable income | Rs.6 lakh |
| Deductions under other tax-saving sections | Rs.1.5 lakh (Section 80C)Rs.50,000 for NPS [Section 80CCD(1b)]Rs.25,000 for medical expenses (Section |
| Net taxable income | Rs.3.75 lakh |
| Tax liability amounting to 5% of the amount above Rs.2.5 lakh | Here it is Rs.1.25Therefore, 5% of Rs.1.25 lakh = Rs.6250 |
| Maximum income tax rebate that you can claim | Rs.6250 |
| Amount of tax that is payable post deduction | Zero |
What are the key points of rebate under section 87a?
- You are eligible for a rebate under Section 80A only if you are a resident Indian taxpayer
- The health and education cess are levied on the income calculated after the discount under Section 80A has been given
- You can claim a rebate under Section 80A if you are a taxpayer below the age of 60 and even between 60 and 80
- Super citizen taxpayers, who are 80 years of age and above, will not be able to claim any rebate under Section 80A
- The rebate is applicable under both the new and the old tax regime
- No refund will be entertained if your net income tax liability is less than the maximum rebate amount of Rs.12,500
- No rebate on your income tax liability will be given if your annual income exceeds Rs.5 lakh. The rebate under Section 80A is only applicable for taxpayers who earn an annual income ranging between Rs.2.5 lakh and Rs.5 lakh.
To sum up:The discount available on your income tax liability under Section 87A is a useful way of saving taxes in the country. In case you have already paid your taxes, you can still claim a tax rebate under Section 87A when you file your income tax return. Since you can avail of a maximum rebate of Rs.12,500, this essentially means that you are required to pay absolutely nothing as income tax if your annual income is less than Rs.5 lakh.
