Aug 122014
 

Rebate u/s 87A of the Income Tax Act 1961

Finance Act 2013, has introduced new section, namely Section 87A. This newly inserted section gives rebate up to maximum of Rs. 2000/- to the assesses having Net Total Income Less than Rs. 5,00,000/-(Rs. Five lacs only). The rebate under this section is available to the resident Individuals w.e.f. A.Y. 2014-15.

“87A An assessee, being an individual resident in India, whose total income does not exceed five Lacs rupees, shall be entitled to a deduction, from the amount of income tax (as computed before allowing the deduction under this chapter i.e. Chaper VIA) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred percent of income tax or an amount of two thousand rupees, whichever is less.”

Conditions required to be fulfilled:

  • The rebate is allowed only to the individual assesses (not to HUF/Firm/AOP/BOI)
  • The individual should be resident in India
  • Total income should be up to or less than Rs. 5,00,000/-. Total Income here means Income under all heads of Income (Salary, House property, Business & Profession, Capital Gain and Other sources) after deducting the deduction under chapter VI i.e. deduction from 80C to 80U.
  • No deduction is available to Super Senior Citizens whose age is more than 80 years.

Quantum of Rebate:

The rebate will be the lower of

  • 100% of the tax payable on Total Income; or
  • Rs. 2,000/-

Impact on Tax liability:

As a result of the above mentioned insertion in the Income tax Act by Finance Act 2013, resident individual both male and female having total income upto Rs. 2,70,000/- shall not be required to pay any tax.

The impact of Section 87A on tax liability can be illustrated through the below examples:

Particulars

Example I

Example II

Example III

Salary Income

-

380000

265000

House Property

340000

-

-

Business Profession

-

-

240000

Other Sources-Interest on FD-Interest on Saving account

62000

2000

98000

6000

122000

14000

Gross Total Income

404000

484000

641000

Less: Deductions u/s 80C to 80U
80C (Investment in LIC)

150000

150000

124000

80TTA (Interest on Saving account)

2000

6000

10000

Total Income (a)

252000

328000

507000

Tax Liability(b)

200

7800

26400

Rebate U/s 87A* (c)

200

2000

-

Net Tax(b-c)

-

5800

26400

Add: Cess

-

174

792

Total Tax

-

5974

27192

Note:

Rebate is based on Total income as highlighted in above table in bold and italics.

*In example III no rebate is allowed as income exceeds Rs. 5 lacs.

Above working are done on the basis of the Finance Bill 2014 applicable from the Assessment year 2015-16.