Section 87A: Income Tax Rebate announced in Budget 2013

Section 87A: Income Tax Rebate Frequently Asked Questions (FAQ’s)

Q1. Whether basic exemption limit for Individuals, HUF’s, AOP & BOI under the Income Tax Act, 1961 has been raised from Rs. 2,00,000/- to Rs. 2,20,000/-

Ans. NO, the basic exemption limit remains unchanged at Rs. 2 Lakh for FY 2013-14 (AY 2014-15).

Q2. In the Budget 2013 Speech, The Finance Minister had said,

“Nevertheless, I am inclined to give some relief to the tax payers in the first bracket of Rs. 2 Lakh to Rs. 5 Lakh. Assuming an inflation rate of 10% and a notional rise in the threshold exemption from Rs. 2,00,000/- to Rs. 2,20,000/- I propose to provide a tax credit of Rs. 2,000/- to every person who has a total income upto Rs. 5 Lakh. 1.8 crore tax payers are expected to benefit to the value of Rs. 3,600 crore.”

So doesn’t it mean that the exemption has been raised by Rs. 20,000 and tax relief of Rs. 2,000/- given to every person?

Ans. No, it doesn’t mean that!!!

Q3. So what is the point? Many people are saying that the exemption has been raised by Rs. 20,000/-. I am confused!

Ans. It means that though threshold exemption remains unchanged, tax benefit of upto Rs. 2,000/- is given.

Q4. How that is made possible?

Ans. This has been made possible by inserting a new section 87A in the Income Tax Act, 1961 which allows REBATE of upto Rs. 2,000/- from the income tax payable.

Q5. Whether there is any condition for availing this benefit?

Ans. Yes, this benefit is available only if the income doesn’t exceed Rs. 5 Lakh.

Q6. Say my income is Rs. 5,50,000/- and I have paid Life Insurance premium of Rs. 50,000/-. Will I be eligible to claim the rebate?

Ans. Yes, because the ‘Total Income’ after deducting all the deductions available under Chapter VI from the ‘Gross Total Income’ shall not exceed Rs. 5 Lakh.

Q7. That’s great!! I am filing IT returns for myself and as Karta of HUF, so I can take total benefit of Rs. 4,000/-.

Ans. No, this rebate is available ONLY to an ‘INDIVIDUAL’ tax payer, resident in India.

Q8. But in the Budget Speech, as quoted above, the FM used the words ‘I propose to provide a tax credit of Rs. 2,000/- to every person..’ and person also includes a HUF?

Ans. The words used in the budget speech are for general understanding and have no statutory implications. As per new section 87A,

“An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of two thousand rupees, whichever is less.”

Q9. Ohhh… but is it available to both Male and Female assesses?

Ans. Yes.

Q10. How will this benefit a senior citizen (age 60 or above) because the exemption limit in his case is already Rs. 2,50,000/- i.e. in excess of Rs. 2,20,000/-?

Ans. Tax Rebate of Rs. 2,000/- is also available to a senior citizen, if the total income is Rs. 5 Lakh or less. Effectively, it means, a senior citizen, both male and female, need not  pay any tax on total income of upto Rs. 2,70,000/-. However, this benefit is not available to a super senior citizen (age 80 or above) as his total income upto Rs. 5 Lakh is already fully exempted.

Q11. The rebate of Rs. 2000/- is available from which year?

Ans. The new section has been inserted with effect from the 1stday of April, 2014 means it is applicable for Assessment Year 2014-15 and thereafter. In simple words, when you will be filing your income tax return for the Financial Year 2013-14, you will get rebate of upto Rs. 2000/-

Q12. Ok… Can we say that a new type of deduction has been provided for individuals?

Ans. A ‘deduction’ is given under Chapter VI from the gross total income, but this is a ‘rebate’ under Paragraph A of Chapter VIII of the Income Tax Act, 1961 which is deducted from the income-tax payable.

Q13. If the Total Income is say; Rs. 2,15,000/-, Income tax computes to Rs. 1500/- and Rebate of Rs. 2000/- allowed. Does it mean refund of balance Rs. 500 is available?

Ans. No refund is available because rebate is restricted to the amount of income tax payable.

Q14. Whether Return is required to be filed when the Total Income is upto Rs.2,20,000/- and after rebate, no tax is payable.

Ans. Yes, Income Tax Return is required to be filed as usual, if the total income exceeds the basic exemption limit of Rs. 2 Lakh.

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Note: Anyone shall not use this article for commercial purposes, without author’s permission.

Manoj Agarwal
The Author is a Tax Consultant and can be reached at
EMail: Mail: tax2001-it@yahoo.com

  • anu

    My salary is Rs. 2,40,000. If Rs. 2,00,000 is exempted from tax, then my yearly tds deduction should be Rs. 4000. Although, my company is deducting Rs. 2,000 every month on basis of 10% tds on each month’s salary! They say if I show some investment papers then tax won’t bw deducted. I want to know if there tax deduction calculations are correct or not. Kindly help.

    • thesanyamjain

      Yes they are doing it right… You can do two things in this scenario;- Either you can give the investment declaration (Refer: Importance of Investment Declaration Form) to your company or you can claim tax refund.

    • xzxx

      They are doing it wrong. If you haven’t shown any investment then they should only deduct 333.34 Rupee per month as tax.

  • Sriram.N

    i.e. can we claim rebate under section 87A on tax at special rate?

  • Sriram.N

    Whether total income as per section 87A includes capital gains / winning from horse race e.t.c.?

    • thesanyamjain

      Yes tax rebate under section 87A also includes capital gains / winning from horse race e.t.c i.e. you can claim rebate under section 87A on tax at special rate

  • Visvanathan Sivaraman

    So if a person gets 500,000 his take home is 471,160 net of tax-28840.00 But if gets just 2000 more that is gets 502000 his take home is 470688 net of tax of Rs.31312.00 ? That is Rs. 472 less. And if he gets just 501000.00 his take home pay is 469,894.00 that is 1,266 less??????

    Also interestingly the FM says some thing in his address but gives totally a different provision in the Bill??? Well that confirms that one must never take what the politicians say.

    • thesanyamjain

      Yes that’s the irony of getting even a rupee over Rs.5 lacs.

  • Guest

    So o

  • Anuj

    Hi, My question is, for FY 2013-2014 my company has started deducting TDS from salary from the first month (April) itself, I am eligible for tax credit of RS. 2000, but my company has not taken it into consideration while projecting my annual salary and are deducting IT at 10% with no tax credit. What should I do?

    • thesanyamjain

      You should talk to your HR about this, else you would have to file ITR to settle the Tax Credit accordingly and claim refund.

    • Manoj Agarwal

      If you are eligible for tax rebate u/s 87A, and still your company is not considering the same while deducting TDS, it may be that the Tax Manager is not aware of the newly inserted section. You may request the person responsible for deducting tax to visit this site and/or other sources and allow the mandatory rebate available to you. Unlike giving declaration for claiming deduction under chapter VI (like u/s 80C for Life Insurance Premium, PPF, etc), you are not supposed to do anything as the rebate is automatic.

  • Pramod

    if a person’s total income is Rs 5,00,001 he pays Rs 30,000 as tax, and a person earning Rs 4,99,999 pays Rs 28000 as tax???
    does not have any logic, where a person earns only Rs 2 more as pays Rs 2000 as extra tax..

    • thesanyamjain

      Yes you are absolutely right, even 1 rupee can make a difference of Rs. 2,000. Government had to choose one limit, had it they chose Rs.4,00,000 then question would have arises on Rs.3,99,999 and Rs.4,00,001.

      Regarding logic so this scheme is based on American Concept which aims to help low income earners. The main difference is that in America you can actually get refund even your income tax payable is NIL but in India you will get credit only no refund in case you tax payable comes to ZERO.

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