Tax rebate under section 87a for A.Y 2017-18

Rebate under section 87A is provided so that the tax burden of the people with lower income can be reduced. And the benefit can be claimed only by those whose income is within the specified limit.

Note:- Calculation of rebate is to be done before education cess.

Who can claim rebate u/s 87a

• Rebate can be availed only a Resident Individual Assessee.
• The total income of such assessee should not exceed 350,000. Please note that here total income refers to income after availing all the deduction mentioned under chapter VI A.
• The amount of rebate is Rs 2,500 or tax payable whichever is less.

Example 1:-

• Let’s say your Income is Rs 350,000. Your tax payable will come to Rs 5,000  5% x (350,000 - Basic exemption limit of Rs 250,000)
• So Tax Payable will be Rs 5,000 - Rs 2,500 (Rebate u/s 87A)
• So your final Tax Liability will be Rs 2,500 + 3% Education Cess

Example 2:-

• Let’s say your Income is Rs 300,000. Your tax payable will come to Rs 2,500  5% x (300,000 - Basic exemption limit of Rs 250,000)
• So Tax Payable will be Rs 2,500 - Rs 2,500 (Rebate u/s 87A)
• So your final Tax Liability will be Nil + 3% Education Cess
• Please note that if your income is below Rs 300,000 then the rebate u/s 87A will be less than Rs 2,500, as your tax liability itself will be lower than Rs 2,500.

You cannot claim a refund by claiming excess deduction under section 87A. The amount of deduction will be Rs 2,500 or tax liability whichever is lower. 

FY 2015-2016

The condition for FY 2015-16 are as follows:-

• Resident Assessee
• Your total income after deductions should not exceed 500,000.
• The amount of rebate is Rs 5,000 or amount of tax payable whichever is less.

Example:-

• Let’s say your Income is Rs 400,000. Your tax payable will come to Rs 15,000  10% x (400,000 - Basic exemption limit of Rs 250,000)
• So Tax Payable will be Rs 15,000 - Rs 5,000 (Rebate u/s 87A)
• So your final Tax Liability will be Rs 10,000 + 3% Education Cess

The rebate for 15-16 is double that that of 16-17 because the tax rate in that particular year was 10% till Rs 500,000.

Whereas the same has been reduced to 5% for FY 2016-17.

Why Rebate?

Well let's say if the basic exemption limit is increased what it does is it will give the benefit to everyone irrespective of their income level.

Whereas in order to claim rebate your income has to be under a specified limit in order to claim that benefit.

So if Mr XYZ has an income of Rs 300,000 he can claim the benefit u/s 87 A, but if the income of Mr ABC is Rs 10,00,000 he cannot claim the above mentioned benefit.

So the benefit of rebate will be given only to those individual whose income doesn't exceed the specified limit as mentioned above.

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