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Section 87A Tax rebate / Tax credit of Rs 2000

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In Budget 2013, a new Section 87A was introduced under Income tax Act to allow for tax credit / rebate of Rs 2000 to taxpayers whose taxable income is upto Rs 5 lakhs.

Persons whose taxable income is upto Rs 5 lakhs will get a tax credit / tax rebate of Rs 2000 under Section 87A of Income Tax Act 1961.

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 / her total income with which he/she 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.”

Key features

  • This tax rebate / credit will be applicable for Assessment year 2014-2015 & onwards.  You will get this rebate for the income earned in FY 2013-2014.
  • Rebate is only available to Individuals
  • No credit u/s 87A to  Non – resident
  • If total tax payable is less than Rs 2000 before this rebate, then rebate will be restricted to tax payable.

87A Tax Rebate calculation

If your income after all deductions is less than Rs 5 lakhs, then you can claim rebate u/s 87A

  • Calculate total Tax payable on your Income after all deductions
  • Less – Rebate u/s 87A
  • Add  Surcharge & Education cess

How to claim this rebate

If you fall in Rs 2-5 lakhs slab, you can claim this rebate while filing the income tax returns. This will reduce your tax liability by that amount.

Ideally, if you are salaried employee & eligible for this rebate, you company should consider this while deducting TDS. However, if they donot give benefit of this rebate, you can claim this when filing income Tax returns.

Can I claim this rebate, if my CTC (salary package) is Rs 6 lakhs ? 

May be. It depends on your net taxable income after claiming deductions.

If your Net Taxable income is below Rs 5 lakhs, then you can claim tax credit u/s 87A.  Net Taxable Income is calculated after claiming all deductions (80C, 80D etc) from the Gross total taxable income

Whether the basic exemption limit has been raised from Rs 2 lakhs to Rs 2.20 lakhs ?

No. The existing slabs and rates have been kept unchanged.

  • Tax on income from 2 lakh to 5 lakh is at 10%,
  • up to Rs 10 lakh at 20% and
  • above 10 lakh at 30%.

Only taxpayers in Rs 2-5 lakhs slab will get a rebate of Rs 2000 under section 87A

There may be few reasons why Finance minister has not raised the exemption limit to Rs 2.20 lakhs instead of giving this new rebate:

1) those who income is in Rs 2 – 2.20 lakhs, will not be required to file returns as their income will be below taxable limit. And government wants more people to file their returns.

2) As Senior citizen income is already exempt till RS 2.5 lakh, they would not have got benefit of this rebate. Now, they can also claim rebate under section 87A if their total income is below Rs 5 lakh. However, Super Senior citizen cannot claim benefit u/s 87A as their income is exempt till Rs 5 Lakh already.

 

Whether your company is considering this rebate while deducting TDS? If you have any queries related to above tax credit, please feel free to comment below.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please comment below

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16 comments

  1. From A.Y 2014-2015 In Case of Refund REBATE U/S 87A Applicable or not ?

    Query????
    Example :
    Suppose for a.y 2014-2015 , if Net taxable income ( after all allowable expenditure & chapter VIA ) of a commission agent of LICI is Rs 2,55,250/=, then in that case, tax payable should be Rs 5525,then deduct 87A ( Rs 5525 – 2000 ) = 3525 , after that ( 3525+ 106 ) (3% of rs 3525 ) = Rs 3631, then ( 3631- 45255 ) = Rs 41624 as TAX REFUNDABLE .
    ( Note: Suppose as per 26AS total TDS for a.y Rs 45255 ).

    My question :
    Above mentioned example was correct or not ??
    If yes, then pls clarify with valid reasons.
    If No, then clarify reasons .

  2. DrRakeshKumarChoudhary

    resp sir,
    can I claim I.T. rebate/relief under 80 D for the premium part contributed for dreaded disease rider alng with main life insurance policy.

  3. I have exemption from salary 75000..whether i should file ITR 1 or 2..I filed last time ITR 1..what about that..please reply sir

    • Hi Atul,

      What kind of exemption it is ? If it is allowances under head salary, then it is not considered for purpose of ITR 2

  4. I hope this rebate will continue for FY 14-15 as well as there was no mention of the same in the Budget speech ??

    • Hi Karan,

      Budget 2014 is silent about Section 87A and no amendment is mentioned. So it means that existing 87A provision will remain the same.

      Section 87A inserted in Budget 2013 doesnot specify benefit limited to one assessment year. It says –

      Section 87A shall be inserted after section 87 by the Finance Act, 2013, w.e.f. 1-4-2014 :
      Rebate of income-tax in case of certain individuals.
      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.

      Hence it seems Sec 87A will be eligible for all Assessmnet years after AY 2014-2015.

      So it should be applicable for AY 2015-16 also.

  5. Respected Sir,
    I got the required information. Very useful.
    Thanking you,
    Yours faithfully,
    Rajasekaran

  6. Very useful
    Thank you Sir,
    Rajasekaran.

  7. hi sir
    pls let me know….
    my gross aanual salary is Rs. 642000
    i have viA/80c of Rs. 120000 and 80D Rs. 3900
    HRA Deduction Rs. 70908
    my total taxable income is Rs. 447192
    can i have tax credi6t of Rs. 2000 for 87A ?

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