​What is rebate under section 87A and who can claim it?

What is refund under area 87 A and who can declare it?. A person who is resident in India and whose overall earnings does not go beyond Rs. 5,00,000 after reduction is entitled to declare refund under area 87 A. Refund under area 87 A is readily available in the type of reduction from the tax liability. Refund under area 87 A will be lower of 100% of income-tax liability or Rs. 5,000 Simply put, if the tax liability surpasses Rs. 5,000, refund will not be offered.

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Nevertheless in case of taxpayer, being a Private homeowner in India, refund under area 87 A of Rs. 12,500 or 100% of tax, whichever is lower, would be offered if his overall earnings does not go beyond Rs. 5,00,000

What is refund under area 87 A and who can declare it?

Refund u/s. 87 A Conditions:

  • Needs To be Homeowner Person and,
  • A LOCAL PERSON having OVERALL EARNINGS upto Rs. 5.00 lac will be qualified for a refund of Rs. 12,500 limited to the quantity of tax payable by him.
  • Refund u/s 87 A not offered to any other assessee.
  • This refund is offered prior to charging education cess.

Area 87 A supplies refund of earnings tax to resident person, whose overall earnings does not go beyond Rs 5,00,000 The quantity of refund is Rs 12,500 or 100% of earnings tax whichever is less. It is deductible from earnings tax prior to computing health and education cess. [Amendment by Finance (No.2) Act, 2019]

Compute refund u/s 87 A in the following cases:

In order to offer tax relief to the specific tax payers who remain in the 5% tax piece, area 87 An offers a refund from the tax payable by an assessee, being a specific citizen in India, whose overall earnings does not surpass Rs 5,00,000

  • ( 1) The refund will amount to the quantity of income-tax payable on the overall earnings for any evaluation year or a quantity of Rs 12,500, whichever is less.
  • ( 2) Subsequently, any private having overall earnings approximately Rs 5,00,000 will not be needed to pay any tax. In result, the refund would be the tax payable or Rs 12,500, whichever is less.
  • ( 3) Even more, the aggregate quantity of refund under area 87 A will not surpass the quantity of income-tax (as calculated prior to enabling such refund) on the overall earnings of the assessee with which he is chargeable for any evaluation year.
Details Case 1 Case 2
Assessee Person Person
Residential status Citizen Citizen
Overall Earnings Rs 4,90,000 Rs 5,12,000
Tax on above Rs 12,000 Rs 14,000
Refund u/s 87 A Rs 12,000 Nil
Factor Overall earnings goes beyond Rs 5 lacs
Tax after refund Nil Rs 14,900

Illustration for much better understanding

Mr. Raja (age 35 and local in India) is an employed worker. His taxable wage for the year 2016-17 totaled up to Rs. 5,84,000 He has actually transferred Rs. 94,000 in public provident fund untitled for reduction under area 80 C. The company has actually subtracted tax of Rs. 22,660 from his wage. What will be his tax liability for the year?

Details Quantity
Earnings from wage 5,84,000
Earnings from home home Nil
Earnings and gains of organization or occupation Nil
Capital gains Nil
Earnings from other sources Nil
Gross Overall Earnings 5,84,000
Less : Reductions under area 80 C on account of financial investment in PPF 94,000
Overall Earnings (i.e., gross income) 4,90,000
Tax on gross income to be calculated by using the appropriate rates [Amendment by Finance (No.2) Act, 2019] 12,000
Less: Refund under area 87 A

12,000
Tax Liability After Refund Nil
Include: Additional Charge ($) Nil
Tax Liability After Additional Charge NIL
Include: Education cess @ 2% on tax liability after additional charge NIL
Include: Secondary and college cess @ 1% on tax liability after additional charge NIL
Tax liability prior to refund under areas 86, area 89, areas 90,90 A and 91 (if any) NIL
Less: Refund under areas 86, area 89, areas 90, 90 A and 91( if any) Nil
Tax Liability for the Year Prior To Pre-paid Taxes NIL
Less: Prepaid taxes in the type of TDS NIL
Tax payable/Refundable Nil

[Amendment by Finance (No.2) Act, 2019] The earnings tax rates for the fiscal year 2019-20 appropriate to a specific listed below the age of 60 years are as follows:

  • Nil upto earnings of Rs. 2,50,000
  • 5% for earnings above Rs. 2,50,000 however upto Rs. 5,00,000
  • 20% for earnings above Rs. 5,00,000 however upto Rs. 10,00,000
  • 30% for earnings above Rs. 10,00,000

Apart from above, education cess @ 2% and secondary and college cess @ 1% will be imposed on the quantity of income-tax. Using the above regular tax rates, tax on earnings (prior to cess) will pertain to Rs. 24,000

Refund under area 87 A will be Rs. 5,000, being lower of following:

( a) Tax on overall earnings, i.e., Rs. 24,000; or
( b) Rs. 5,000

($) Additional charge is imposed @ 12% on the quantity of income-tax where the overall earnings of the taxpayer goes beyond Rs. 1 crore. In this case, the overall earnings is listed below Rs. 1 crore and, thus, no additional charge will be imposed.

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Illustration for much better understanding

Mr. Kapoor (age 35 years and citizen in India) is running a medical shop. Taxable service earnings for the year totaled up to Rs. 5,84,000 He does not have any other earnings. He transferred Rs. 50,000 in public provident fund. Can he declare refund under area 87 A?

Refund under area 87 A is offered to a person who is resident in India and whose overall earnings does not surpass Rs. 5,00,000 In this case, the gross overall earnings of Mr. Kapoor is Rs. 5,84,000 and he has actually transferred Rs. 50,000 in PPF and, for this reason, overall earnings i.e. gross income will concern Rs. 5,34,000(Rs. 5,84,000 less Rs. 50,000). Refund under area 87 A is offered just if the overall earnings does not surpass Rs. 5,00,000 In this case, the overall earnings goes beyond Rs. 5,00,000 and, for this reason, he can not declare refund under area 87 A.

Can a collaboration company or HUF claim refund under area 87 A?

Refund under area 87 A is readily available just to a private, for this reason, anyone aside from a person can not declare refund under area 87 A.

Can a non-resident claim refund under area 87 A?

Refund under area 87 A is offered just to a person who is resident in India, for this reason, non-residents can not declare refund under area 87 A

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