An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 is entitled to claim rebate under section 87A. Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87A will be lower of 100% of income-tax liability or Rs. 2,000. In other words, if the tax liability exceeds Rs. 2,000, rebate will be available to the extent of Rs. 2,000 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 5,00,000.

Illustration for better understanding

Mr. Raju (age 45 and resident in India) is a salaried employee. His taxable salary for the year 2014-15 amounted to Rs. 5,86,000. He has deposited Rs. 96,000 in public provident fund untitled for deduction under section 80C. The employer has deducted tax of Rs. 22,660 from his salary. What will be his tax liability for the year?

Particulars  Amount  
   
Income from salary 5,86,000
Income from house property   Nil
Profits and gains of business or profession                   Nil
Capital gains Nil
Income from other sources    Nil
Gross Total Income  5,86,000
Less : Deductions under section 80C 96,000
Total Income (i.e., taxable income)  4,90,000
Tax on taxable income  24,000
Less : Rebate under section 87A (**) 2,000
Tax Liability After Rebate  22,000
Add: Surcharge Nil
Tax Liability After Surcharge   22,000
Add: Educationcess @ 2%  440
Add: Secondary and higher education cess @ 1%    220
Tax liability before rebate under sections 86, section 89, sections​ 90, 90A and 91 (if any) 22,660
Less : Rebate under sections 86, section 89, sections​ 90, 90A and 91 (if any) Nil
Tax Liability for the Year Before Pre-paid Taxes 22,660
Less: Prepaid taxes in the form of TDS 22,660
Tax payable/Refundable  Nil
   

Illustration for better understanding

Mr. Ram Kapoor (age 45 years and resident in India) is running a medical store. Taxable business income for the year amounted to Rs. 5,94,000. He does not have any other income. He deposited Rs. 70,000 in public provident fund. Can he claim rebate under section 87A?

Rebate under section 87A is available to an individual who is resident in India and whose total income does not exceed Rs. 5,00,000. In this case, the gross total income of Mr.Ram Kapoor is Rs. 5,94,000 and he has deposited Rs. 70,000 in PPF and, hence, total income i.e. taxable income will come to Rs. 5,24,000 (Rs. 5,94,000 less Rs. 70,000). Rebate under section 87A is available only if the total income does not exceed Rs. 5,00,000. In this case, the total income exceeds Rs. 5,00,000 and, hence, he cannot claim rebate under section 87A​.

 

 

Before making any decisions do consult the experts. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on.

 

Also read related article: How to Pay Zero Tax for Income up to Rs 10 Lakhs by CA Chirag Chauhan

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