In Budget 2013, finance minister P Chidambaram has given a small relief to taxpayers whose income is upto Rs 5 lakhs.
Persons whose income is upto Rs 5 lakhs will get a tax credit of Rs 2000. They will get a rebate of Rs 2000 under newly inserted section 87A in Income Tax Act.
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.”
Myth / Wrong understanding
Many people think that the exemption limit is increased from Rs 2 lakh to Rs 2.2 lakh.
Some think that you need to claim refund of Rs 2000 after you file the return.
But above understanding is NOT Correct.
Correct Understanding: Taxpayers in Rs 2-5 lakhs slab will get a rebate of Rs 2000 under section 87A and will claim this rebate while filing the returns & will reduce their tax liability.
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
From when this new rebate is available?
This new section (87A) has been inserted w.e.f 01-April-2014 and will be applicable for Assessment year 2014-2015 & onwards.
For the income earned in 2013-2014, you will get this rebate.
If my tax due is less than Rs 2000, before claiming this rebate, will I get a refund ?
No. the rebate is restricted to amount of tax payable upto maximum of Rs 2000. So if your Income is Rs 2,10,000 after all deductions and your tax liability is Rs 1000, you will get rebate of whole Rs 1000 under new section 87A and no tax will be payable.
If my salary package CTC is Rs 6 lakhs, can I claim this rebate ?
May be. It will depends on the “Total Income” under Income Tax Act. Total Income is calculated after claiming all deductions (80C, 80D etc) from the Gross total taxable income. So if your Net Taxable income is below Rs 5 lakhs, you can claim rebate of Rs 2000 under section 87A of Income Tax Act.
Whether this rebate is also available to Non resident?
No , Rebate under section 87A is not available to non resident persons (NRI).
How to calculate
Calculate Tax payable
Less – Rbate
Add Surcharge & Education cess
Why finance minister has introduced this tax credit rather than increasing the exemption limit to Rs 2.2 lakhs ? It would have same effect.
Valid question. There may be couple of reasons for this, If Chidambaram had raised the exemption limit to Rs 2.2 lakhs,
1) then Senior citizen would not have got benefit as exemption limit for them is already 2.5 lakhs. But now Senior citizen can also claim rebate under section 87A.
2) those who would be in the Rs 2-2.2 lakh income bracket will fall out of the return filing net and government don’t wants this.
Please comment / share your views on this new rebate introduced. Will you get benefit of this?
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