Section 87a of the Income Tax Act, 1961 has been in limelight since the announcement of the Interim Budget 2019-20 in which individuals earning a net taxable income upto Rs.5 lakh have been given full tax rebate. Section 87a was first introduced to the Income Tax Act, 1961 by means of the Finance Act, 2013. Individuals having net taxable income below a specific threshold can claim tax rebate under Section 87A.
Tax Rebate Under Section 87A
The interim budget for FY 2019-20 has introduced full tax rebate under section 87A for individuals earning a net taxable income upto Rs. 5 lakhs which means the maximum tax rebate limit under section 87A has been increased to Rs.12,500 for the qualified taxpayers from Rs. 2,500. However, in case net taxable income of the taxpayer exceeds Rs. 5 lakh for AY 2020-21, the rebate under this section will be zero.
Eligibility Criteria for Claiming Tax Rebate Under Section 87A
In order to claim tax rebate under section 87A, you should be meeting the following conditions:
- You must be a Resident Individual. The rebate can only be claimed by the taxpaying individuals. It cannot be claimed by HUF, firms or companies.
- Your net taxable income for FY 2019-20 (income after deductions) should not be more than Rs. 5 lakh.
- The maximum rebate that can be availed under section 87A is Rs. 12,500. It means that if the total tax payable is less than or equal to RS. 12,500, full tax rebate can be claimed.
How the New Section 87A Limit will Work:
| Net Taxable Income | Income Tax | Rebate Under Section 87a | Net Tax Payable |
| Rs. 3 lakh | Rs. 2,500 | Rs. 2,500 | Nil |
| Rs. 4 lakh | Rs. 7,500 | Rs. 7,500 | Nil |
| Rs. 5 lakh | Rs. 12,500 | Rs. 12,500 | Nil |
| Rs. 5.5 lakh | Rs. 22,500 | Nil | Rs. 22,500 |
Earlier Tax Rebate Under Section 87A (AY 2019-20)
As per the Income Tax Act, an individual who is a resident of India and whose net taxable income does not exceed Rs. 3.5 lakh is entitled to claim rebate under section 87A. Rebate under section 87A is available in the form of a deduction from the total tax liability and is the lower amount among 100% of income-tax liability or Rs. 2,500.
However, if the tax liability exceeds Rs. 2,500, the rebate will be available to the extent of Rs. 2,500 only and no rebate will be available if the net taxable income exceeds Rs. 3.50 lakh.
Eligibility Criteria to Claim Full Tax Rebate Under Section 87A
- The individual must be a resident of India.
- The net taxable income (income after making eligible deductions under Section 80) should not be more than Rs. 5 lakhs for AY 2020-21 or Rs. 3.5 lakh AY 2019-20.
In case an individual meets the criteria mentioned above and has net income less than Rs.5 lakhs can claim for full tax rebate under section 87A from the upcoming assessment year onwards. However, it should be noted that only individuals can make the tax rebate claim under the section. Other taxpayer entities like HUF, firms, companies, NRIs cannot claim this benefit.
How to claim the rebate under Section 87A?
You can claim the rebate under Section 87A while filing your tax return. For individuals, the relevant date for filing returns is 31st July of each year. The financial year runs from 1st April to 31st March, giving you 4 months to file your income tax returns.
What if the tax is already deducted as TDS?
In this case, you can claim the rebate under Section 87A as a refund while filing your returns.