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Rebate u/s 87A Increased to Rs 5000 For F.Y. 2016-17

Rebate under Section 87A of Income Tax Act, 1961. Section 87A of Income-tax Act, provide for a rebate of an amount equal to hundred per cent of such income-tax or an amount of Rs. 2000/- (Rs. 5000 f0r Financial Year 2016-17), whichever is less, from the amount of income-tax to an individual resident in India whose total income does not exceed five lakh rupees. Rebate of up to Rs. 5,000 for resident individuals having total income of up to Rs. 5,00,000 as per Sec-87A of Income Tax Act, 1961 for A.Y. 2017-18 i.e. F.Y. 2016-17.

Computation showing how to claim rebate u/s 87A of Income tax act, 1961

how to claim rebate u/s 87A of Income tax act 1961

Points to Remember :

  • Rebate under section 87A available to both Male and Female assesses
  • If the total tax payable by the assesse is less than Rs. 2000/- (Rs. 5000/- for F.Y. 2016-17), rebate u/s. 87A is restricted to “total tax payable”.
  • Rebate u/s. 87A is allowed before levy of Education Cess, SHE Cess & Surcharge.
  • Rebate benefit is available to all category of Individuals but not to super senior citizen, since he is already fully exempted up to Rs. 5 lakh.
  • Above amendment does not mean that basic Exemption Limit has been raised.

But, as per latest amendments regarding Rebate in union Budget 2017 the following points shall be considered:

1)On 01/02/2017 the finance minister announced to reduce the lowest tax rate from 10 per cent to 5 per cent thereby providing a benefit of up to Rs 12,500 to all tax payers. If this came as a big benefit to all tax-payers, the finance minister also took back some of the benefits available to tax payers falling in the income tax bracket of Rs 2.5 lakh to Rs 5 lakh.

2)While the existing provisions of section 87A provide for a rebate up to Rs 5,000 from the income-tax payable to a resident individual if the total income does not exceed Rs 5 lakh, the finance minister proposed to amend Section 87A and reduced the maximum available rebate from Rs 5,000 to Rs 2,500. He also moved to reduce the eligibility criteria as this rebate will now be only available to resident individuals whose total income does not exceed Rs 3,50,000.

3)This means that all assessees falling in the tax bracket of Rs 3.5 lakh and Rs 5 lakh will receive no rebate and so the net benefit of the cut in tax rate (from 10 per cent to 5 per cent) for an individual them goes down by Rs 5,000.

Illustratively, while the pre-budget tax liability for an individual with a net taxable income of Rs 5 lakh stood at Rs 20,600 (after accounting for a rebate of Rs 5,000 under section 87A and education cess); post budget his tax liability would amount to Rs 12,875. Thus the net benefit post budget announcements is only Rs 7,725. Had the government not withdrawn the benefit under section 87A, the benefit for the tax-payer would have been higher by Rs 5,150 at Rs 12,875.

Let us take a Few Examples:

Example 1 :

Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. Is Rs. 2,40,000.

Answer

ParticularsRs.
Tax on total [email protected]% of Rs.2,40,00072,000
Less: Rebate under section 87A*( – )
72,000
Add: Education [email protected]%1,440
Secondary and higher education [email protected]%720
Total tax liability74,160

*As per section 87A the rebate of Rs. 5,000 is allowed to residential individual.

Example 2

Compute the tax liability of Mr. X, a salaried employee (age: 45 years), assuming that the total income of Rs. 2,70,000. During the previous year ending on March 31, 2017.

Answer

ParticularsRs.
Tax on total [email protected]% of Rs.20,0002,000
Less: Rebate under section 87A(2,000)
Add: Education [email protected]%Nil
Secondary and higher education [email protected]%Nil
Total tax liabilityNil

*As per section 87A the rebate shall be equal to the amount of income tax payable or an amount of Rs. 5,000, whichever is less.

  1. 20000*10% = 2000
  2. 5000

Rebate allowed of Rs.2000.

Example 3 :

Compute the tax liability of Mr. Y, a salaried employee (age: 46 years), assuming that the total income of Rs. 4,90,000. During the previous year ending on March 31, 2017.

Answer

ParticularsRs.
Tax on total [email protected]% of Rs.2,40,000(Rs.4,90,000-2,50,000)24,000
Less: Rebate under section 87A(5,000)
19,000
Add: Education [email protected]%380
Secondary and higher education [email protected]%190
Total tax liability19570

 *As per section 87A the rebate shall be equal to the amount of income tax payable or an amount of Rs. 5,000, whichever is less.

FAQ :

1) What is Section 87A and the increase in income tax rebate from Rs 2,000 to Rs 5,000 proposed in the Budget for 2016-17?

Ans: Section 87A of the Act provides that in case an assessee whose total income does not exceed Rs 5 lakh shall be entitled to a rebate from the income-tax payable on his total income to the extent of an amount equal to 100% of such income-tax or an amount of Rs 2,000 whichever is less. This benefit would be available for tax payable in respect of the financial year 2016-17.

2) Can an individual taxpayer with no salary/pension income contribute to National Pension System and claim additional rebate besides the rebate up to Rs 1.50 lakh under Section 80C?

Ans: An individual assessee who has in the previous year paid or deposited any amount in his account under the pension scheme notified or as may be notified by the Central Government shall be allowed a deduction in computing his total income of the whole of the amount so paid or deposited as does not exceed 10% of his gross total income. The admissible deduction is limited to a sum of Rs 1,00,000 under Section 80CCD of the Act.

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