Calculation Of Rebate u/s 87A with Examples & Who Is Eligible

Edna B. Shearer

Calculating taxes and rebates is a complex task for most people. There are numerous clauses, deductions, and additions to annual taxes as per the slab division. One such provision is the tax rebate under Section 87A. It is for the taxpayers whose annual income does not exceed 5 lakhs. But does it apply directly to the total income of a person? How to calculate the exact figure of rebate to make an error-free application? Let us get answers to these queries to understand this tax provision thoroughly. 

Calculation of Tax Rebate Under Section 87A 

One can either do the calculation by himself by following these steps or leave it on the service provider he chooses for the process. To get the best assistance, click

  • Add all the sources of income like salary, capital gains, income from indirect sources, real estate investments, and so on. The amount that comes after addition is the gross income. 
  • Now apply all the deductions listed under Chapter VIA of the tax regime. The amount after deductions is the net income. This sum has to be less than or equal to 5 lakhs. 
  • If it is 5 lakhs, one must calculate his tax payable, which will be equivalent to the rebate. The maximum rebate gainable is 12,500. 
  • If the amount is less than or equal to the rebate limit, one must claim the rebate. If it is higher than that, the rebate account will become NIL. 

A Simple Example To Understand The Process 

Here is a simple example of how to calculate the rebate under Section 87A. Follow this to understand the process better. Any taxpayer who takes the help of a service does not need to be concerned about this complexity. 

  • Suppose person A earns 6.5 lakhs annually, which is his gross total income. And person B earns 6.8 lakhs.
  • Now apply the deductions under Chapter VIA which will amount to 1.5 lakhs. So, the net taxable amount for person A becomes 5 lakhs, and for person B it is 5.3 lakhs. This result shows person B is not eligible for the rebate. 
  • Now person A will calculate his income tax at 5% on 5 lakhs. The tax payable amount after this calculation is 12,500. 
  • Since the rebate limit is 12,500, person A can claim his rebate, which makes his tax liability zero. 

This example shows how the net income cannot be more than 5 lakhs for a person to claim the rebate. 

Eligibility Criteria To Claim Rebate u/s 87A

Every taxpayer has to qualify the eligibility criteria chalked out for rebate under Section 87A before applying for the same. One must follow the given details and match their ITR (Income Tax Return) file with the information. 

  • The taxpayer has to be a resident individual of India. It implies no NRIs are eligible to claim this rebate. 
  • The net annual income of the person must be 5 lakhs which is the amount one will get after applying all the deductions in Chapter VIA. 
  • The maximum rebate u/s 87A that a taxpayer can claim is 12,500. And the tax rebate cannot exceed the tax payable. Therefore, if the net income after deductions is more than 5 lakhs, one will not be able to claim the rebate. 

Rebate u/s 87A pulls off the tax burden and eases the process. Every eligible person should look out for options to claim correctly to avoid any hassle. If there is any doubt or queries, it is better to take the help of a service provider. Yes, always choose an expert to take care of taxes and other legalities! 

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