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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.

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