There is a  lot of confusion in the manner in which the rebate u/s 87A of Income Tax Act is calculated. So I would like to explain the manner in which it should be calculated in this article.

rebate 2000 us 87A

Applicability:

    • Applicable From

Rebate u/s is inserted w.e.f. 01-04-2013 i.e., the rebate provision is applicable from Financial Year 2013-14 (Asst. Year 2014-15).

    • Applicable To (Type of Assessee) 

1. Rebate is applicable for Resident Individuals i.e., Male and Female including Senior Citizens (less than 80 years).

2. Which means the rebate is not applicable for Non-Resident Individuals

    • Net Income Limit Less Than 5,00,000

1. The Rebate is applicable for above mentioned individuals whose Net Income i.e., Taxable Income does not exceed 5,00,000/-.

2. Which means only if your net taxable income is less than or equal to 5,00,000, you are eligible for rebate.

3. Even if your Gross Total Income is more than 5,00,000 but after considering deduction, the Net Income falls below 5,00,000 you are still eligible for rebate.

e.g. Your Gross Total Income = 5,70,000

       Deductions U/s 80C – 80U (LIC, PF, etc., ) = 90,000

       Net Taxable Income = 4,80,000

Since your Net Taxable Income doesn’t exceed Rs. 5,00,000 you are eligible for rebate

Note: Although Resident – Very Senior Citizens (more than 80 Yrs) are also eligible for Rebate, but since their basic exemption is already 5,00,000 and Rebate is applicable only if the taxable income is less than 5,00,000, question of Rebate does not arise.

 

Rebate Calculation:

    • The amount of rebate is 100% of income tax or Rs. 2,000 whichever is less.
    • Rebate should be deducted before calculating education cess.
    • Illustrations on how to calculate the rebate:

Illustration 1

Calculation of Rebate u/s 87A

  Particulars Calculation Amt.
A Gross Total Income Rs. 3,50,000
B Deductions Rs. 40,000
C Net Taxable Income 3,50,000-40,000 Rs. 3,10,000
D Tax on Net Taxable Income 10% * (3,10,000-2,00,000) 11,000
E Rebate Allowed:
  • 100% of Tax (D)
11,000
  • Maximum Allowed
2,000
Least of (a) and (b) (2,000)
F Tax After Rebate 9,000
Add: Education Cess & S.H. Edu. Cess 9,000*3% 270
Net Tax Liability 9,000+270 9,270

 

Illustration 2

Calculation of Rebate u/s 87A

  Particulars Calculation Amt.
A Gross Total Income Rs. 2,50,000
B Deductions Rs. 35,000
C Net Taxable Income 2,50,000-45,000 Rs. 2,15,000
D Tax on Net Taxable Income 10% * (2,15,000-2,00,000) 1,500
E Rebate Allowed:
  • 100% of Tax (D)
1,500
  • Maximum Allowed
2,000
Least of (a) and (b) (1,500)
F Tax After Rebate Nil
Add: Education Cess & S.H. Edu. Cess Nil
Net Tax Liability Nil