Rebate of Income Tax Under Section 87A for Financial Year 2017-18 (Assessment Year 2018-19)

There are following conditions to avail this rebate:-

  1. The income tax payer should be resident individual.
  2. The individual may be male or female.
  3. The rebate is allowed to senior citizens also.
  4. This rebate is not given to Hindu Undivided Family (HUF), Partnership Firm and Companies.
  5. His/her taxable income should not exceed Rs.500000/=. Taxable income means Gross income  minus all the deductions under section 80. If the taxable income of a resident individual is more than Rs.5,00,000/= during financial year 2017-18, he/she can not avail the rebate under section 87-A. Gross income includes:-
    • Income from Salary
    • Income from Business and profession
    • Income from capital gains
    • Income from house property
    • Income from other sources (interest etc.)
  6. If the taxable income crosses the limit of Rs.5,00,000/=, the income tax will be charged on whole income as per income tax slabs.
  7. The amount of rebate is limited to Rs.5000/= or actual tax payable whichever is the less. The rebate is allowed from the tax payable before adding the cess.
  8. The individual who avails the benefit of this rebate, must file his income tax return. For example, an individual having taxable income more than Rs.2,50,000/= and up to Rs.5,00,000/=, must file his/her return. It means there is no exemption of filing of return if the tax payable is nil after allowing the rebate under section 87A.

Illustration:

During Financial Year 2016-17, Mr. X who is 52 years old, has the following details in respect of his income and investments in tax saving schemes:-

Income from business                                     RS.645000/=

Interest from saving bank accounts                   Rs.12500/=

Amount deposited in PPF A/c                          RS.150000/=

Life Insurance Premium paid                             RS.20000/=

Mediclaim Insurance Premium                           Rs.20000/=

Calculate the amount of income tax to be paid by Mr. X?.

Solution:-

Income from business                                                           Rs.645000/=

Interest from saving bank account                                          Rs.12500/=

Gross total income                                                                Rs.657500/=

Less: Deduction under Chapter VI-A

Deduction u/s 80-C

Amount deposited in PPF A/c                      RS.150000/=

Life Insurance Premium paid                         Rs.20000/=

Total deduction u/s 80-C                              Rs.170000/=

Gross deduction u/s 80-C restricted to                            Rs.150000/=

Deduction u/s 80-D

Mediclaim Insurance Premium paid          Rs.20,000/=          Rs.20000/=

Deduction u/s 80TTA

Interest from saving bank account                                          Rs.10000/=

Net Taxable Income                                                               Rs.477500/=

Tax on above

Up to Rs.250000/=                            NIL

On Balance of Rs. 227500/= @ 10%                                      Rs.22750/=

Less: Rebate u/s 87A                                                                Rs.5000/=

Net tax payable                                                                        Rs.17750/=

Add: Education Cess @ 2% on Rs.20750/=                              Rs.351/=

Add: Secondary & Higher Education Cess @ 1% on Rs.20750/=  178/=

Total Tax Payable                                                                     Rs18279/=

Clarifications:

  • Deduction u/s 80C is allowed maximum up to Rs.150000/=. If investment under section 80C is less than Rs.150000/=, then the actual amount will be allowed for deduction.
  • Deduction under section 80D in respect of Medicalim insurance premium, maximum deduction is allowed up to Rs.25000/= for individual who is not a senior citizen and for senior citizen, deduction in respect of mediclaim insurance premium is Rs.30000/=. Senior citizen means a person who has completed 60 years during the relevant financial year.
  • Deduction under section 80TTA is allowed up to Rs.10000/= irrespective of the income of individual.
  • Rebate of Rs.5000/= is allowed if the total taxable income of an individual is up to Rs.500000/=. In above case total taxable amount is Rs.477500/=.

Rebate of Income Tax Under Section 87A for Financial Year 2018-19 (Assessment Year 2019-20)

The following change has been made in respect of tax rebate under section 87A has been made:-

Income tax relief under section 87A is given to the resident individual tax payers whose taxable income is up to Rs.350000/= only during financial year 2018-19 up to Rs.2500/= or the actual income tax payable which ever is the less,.

 

Examples of Rebate Under Section 87A During Financial Year 2018-19 (Assessment Year 2019-20)

Example No.1.

The taxable income of Mr. X                                       .245000/=

Income Tax Payable                                                         Nil

Tax Rebate under section 87A                                         Nil

Net Tax Payable                                                                Nil

Note:- Since there is no tax payable on above income, no question arises for tax rebate under section 87A.

Example No.2.

The Taxable Income of Mr. Y                                           Rs. 280000/=

Income Tax Payable                                                         Rs. 1500/=

Rebate Under Section 87A                                               Rs. 1500/=

Net Tax Payable                                                                      NIL

Note: Tax rebate can not be more than the actual amount of income tax payable under section 87A.

Example No.3.

The Taxable Income of Mrs. X                                              Rs.300000/=

Income Tax Payable                                                              Rs.2500/=

Rebate Under Section 87A                                                    Rs. 2500/=

Net Tax Payable                                                                           NIL

Note: Since the amount of tax payable and rebate under section 87A is Rs.2500/=, no tax is to be paid.

Example No.4.

The Taxable Income of Mrs. Y                                              Rs 320000/=

Income Tax Payable                                                              Rs.3500/=

Rebate Under Section 87A                                                    Rs. 2500/=

Tax Payable                                                                            Rs. 1000/=

Add: Cess @ 4%                                                                     Rs.40/=

Total Tax Payable                                                                     Rs.1040/=

Note: Cess @ 4% is to be added on tax payable amount after adjusting the rebate under section 87A.

Example No.5.

The Taxable Income of Mr. A                                               Rs 350000/=

Income Tax Payable                                                              Rs.5000/=

Rebate Under Section 87A                                                    Rs. 2500/=

Tax Payable                                                                            Rs. 2500/=

Add: Cess @ 4%                                                                     Rs.100/=

Total Tax Payable                                                                     Rs.2600/=

Note: Cess @ 4% is to be added on tax payable amount after adjusting the rebate under section 87A.

Rebate of Income Tax Under Section 87A for Financial Year 2019-20 (Assessment Year 2020-21)

In Financial Year 2019-20 (Assessment Year 2020-21), the limit of rebate under section 87A, is increased from Rs.2500/= to Rs.12500/= and the amount of taxable income (total income) is increased from 350000/= to Rs.500000/=. It means any individual whose total income or taxable income is up to Rs.500000/= after adjusting all the permissible deductions under Chapter VI-A i.e. under Section 80c to 80U.

In simple words whose taxable income after allowing permissible deductions, is up to Rs. 500000/=, need not to pay any income tax but he/she has to file his/her income tax return compulsorily.

This decision of increasing the limit of rebate, really is welcome by every taxpayer whose taxable income is up to Rs.500000/=. After making this amendment, maximum individuals taxpayers can avail this rebate who are covered under Rs.500000/= taxable income.

Rest all the conditions are same.

Illustration:

Mr. X (50 years old) has the following details of his income for financial year 2019-20 (A.Y. 2020-21):-

  1. Income from business Rs.300000/=
  2. Interest from fixed deposits with bank Rs.200000/=
  3. Rent from house property Rs.200000/=
  4. Amount deposited Provident Fund Account Rs.150000/=
  5. Medical Insurance Premium Rs.20000/=

Calculate the taxable income and income tax payable of Mr. X ?

Solution:

COMPUTATION OF INCOME OF MR. X

Income from Business                                                                                     Rs.3,00,000/=

Rental Income from House Property                     Rs.2,00,000/=

Less: Deduction under section 24 @ 30%             Rs.60,000/=                     Rs.1,40,000/=

Interest From Fixed Deposits                                                                           Rs.2,00,000/=

GROSS TOTAL INCOME                                                                                Rs.6,40,000/=

Less: Deduction under section 80C

Deposit in PPF Account                                                                                    Rs.1,50,000/=

NET TAXABLE INCOME                                                                                  Rs.4,90,000/=

COMPUTATION OF INCOME TAX LIABILITY

Up to income of Rs.2,50,000/=                                                                                NIL

Rs. 2,50,001/= to Rs.4,90,000/= i.e. Rs.2,40,000/= @ 5%                             Rs.12,000/=

Total Tax Payable                                                                                           Rs.12,000/=

Less: Rebate U/S 87A                                                                                       Rs.12,000/=

Net Tax Payable                                                                                                       NIL

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