Calculating Rs.2000 Tax Rebate Sec 87A of Income Tax Act-Clarifications

Calculating Rs.2000 Tax Rebate Sec 87A of Income Tax Act - Clarifications. As per the Income Tax Financial Act 2013-14, the new Section 87A is introduced w.e.f. 1.4.2014. It is a big relief as the Rebate of Rs.2000 is announced for the Individuals having Income between Rs.2,00,000  Rs.5,00,000. Now there are lot of doubts on how to avail the Rebate from Income Tax. Some are asking that whether the Basic Income Limit for Individuals has raised to Rs.2,20,000 and basic exemption limit is raised ?.  Let us discuss some important points on availing rebate with reference to the Income Tax Act 2013-14 and Finance Minister's Financial Budget speech.

Calculating Rs.2000 Tax Rebate under Sec 87A of Income Tax Financial Act

The Rebate Rs.2000 under Sec 87A is inserted  after the Sec 87 of the Income Tax Finance Act 2013 and is as follows: 87A. [Omitted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.] The following 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. Clarifications on Sec 87A:
  1. This Sec 87A Rebate of Rs.2000 is applicable to Individuals Indian Male and Female Residents only.
  2. Basic Exemption Limit has not been increased. (Rs. 2 Lakh for Below 60 Years More Detailed particulars Click Here)
  3. This Relief is applicable to all Individuals only if the Total Income is less than Rs.5,00,000
  4. This Section 87A is w.e.f 1.4.2014 means, it is applicable from Assessment Year 2014-15, means for those who are filling their Income Tax Returns for the Financial Year 2013-14.
  5. Tax Rebate is also applicable to Senior Citizens upto Rs. 5,00,000 Income.
  6. First Calculate the Total Taxable Income after making all Possible and eligible Deductions from your Income. ( If the Total Taxable Income is Less than Rs.5,00,000 then you are to eligible claim a Rebate of  Rs.2000).
  7. From the previous step, we get  The Income liable to Tax at Normal Rates.
  8. From the Income Liable to Tax, Calculate the Income Tax.
  9. Now Deduct Max of Rs.2000 as Rebate.
  10. Means It is deductible from income-tax before calculating education cess. The amount of rebate is 100 per cent of income-tax or Rs. 2,000, whichever is less.
  11. After deducting the Rebate, pay the tax after calculating the education cess,  That's it.
Model Calculation of Rs.2000 Rebate in Income Tax Act 2013 as per Section 87A
  1. Let us assume that Your Gross Income is Rs.400000
  2. All Deductions and Exemptions is Rs.100000 and Your Total Income after applying all eligible deductions is Rs.3,00,000.
  3. Hence, Now the Net Taxable Income will become Rs.3,00,000.
  4. Now, 10% Tax on Rs.1,00,000 (Rs.3,00,000 - Rs.2,00,000) will be Rs.10,000.
  5. As the Taxable Income is Less than Rs.5,00,000, apply Tax Rebate u/s 87A upto a Max of Rs.2,000.
  6. Hence Tax is Rs.10,000 - Rs.2,000 = Rs.8,000.
  7. Add Education Cess, Higher and Secondary Education Cess 3%  on Rs.8,000 and Pay the Tax.
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