Rebate under section 87A for the A.Y 2020-21

Last Updated On: Aug. 29, 2020, 8:40 p.m.
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REBATE UNDER SECTION 87A OF THE INCOME TAX ACT

A Rebate under section 87A is one of the provisions of Income-tax that helps the taxpayer’s tax liability. Section 87A of the Income-tax Act, 1961 provides a complete tax rebate for the F.Y 2019-20 to those who are having income around 5 lakhs.

You can claim the benefit of rebate under section 87A for F.Y 2020-21 only if the following conditions are satisfied:

  • If you are an individual who is a resident of India.
  • If your total income after deducting the deductions under certain sections of the Income Tax Act does not exceed Rs.5 lakh in the Financial year.

Points to be noted:

  • The tax rebate has a limit of  Rs 12,500. If your total tax payable is less than Rs 12,500, then you don’t have to pay any tax.
  • The rebate will be applied to the total tax before adding the health and education cess of 4%.

 

Let us understand the section 87A more clearly with an example:

Particulars Person 'X' Person 'Y'
Total Income 6,70,000 6,70,000
Deductions 1,72,000 1,68,000
Net Income 4,98,000 5,02,000
Tax 12,400 12,900
Rebate u/s 87A 12,400 NIL
Tax payable NIL 12,900
Cess@4% NIL 516
Total Tax payable NIL 13,416

 

NOTE: This section is applied for residents including senior citizens

In the above example, there is Tax collection of 13,416 from person Y against NIL tax collection from Person X while the difference of Net Income between them is just 4,000.

It appears to be unjust to collect Tax of around 13,500 more than the other person having income lower by just 4,000. There can be a further amendment in the section to provide at least marginal relief. Like in the above example the Tax collection should be restricted to Rs. 4,000.

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