Rebate of tax under section 87A (as set, 1961 Act, AY 2019-20)

The provision

Section 87A gives a resident individual whose total income does not exceed a stated limit a rebate from the income-tax on that income, equal to the whole of the tax or a stated amount, whichever is less. It is a deduction from the tax itself, not from income.

Amounts for assessment year 2019-20

The held text of the Act shows the figures in force from assessment year 2020-21 (a limit of ₹5,00,000 and a rebate of up to ₹12,500). Its footnotes show that those figures replaced earlier ones only with effect from 1 April 2020. For assessment year 2019-20, therefore:

• the total income must not exceed ₹3,50,000; and
• the rebate is the income-tax computed or ₹2,500, whichever is less.

Points to note

1. Only a resident individual: a non-resident, a Hindu undivided family, a firm or a company gets no rebate.
2. Total income test: the limit is on total income, that is income after the deductions under Chapter VI-A; ₹1 more than ₹3,50,000 takes away the whole rebate.
3. Order: the rebate is given from the tax computed on total income before the deductions of Chapter VIII; cess is then charged on the tax left after the rebate (Finance (No. 2) Act, 2019, section 2(11)).
4. Effect: for an individual below 60, tax on ₹3,50,000 at the slab rates is ₹5,000, so the rebate halves it; for lower incomes it can bring the tax to nil.

Example (our own figures)

A resident individual aged 35 has total income of ₹2,90,000 for assessment year 2019-20. Tax at 5% (Finance (No. 2) Act, 2019, First Schedule, Part I, Paragraph A, item (I)) on ₹40,000 (above ₹2,50,000) is ₹2,000; the rebate is ₹2,000, the lower of the tax and ₹2,500, so no tax is payable. Had his total income been ₹3,60,000, above the limit, tax of ₹5,500 plus cess would be payable with no rebate.