Rebate of Rs. 2000 in Tax Payable under section 87 of Income Tax Act

Rebate of up to  Rs. 2,000 for resident individuals having total income of up to 5 lakh [New Section 87A]

Rebate of Rs. 2000 in Tax Payable under section 87 of Income Tax Act:

Related amendment in section: 87

(i) In order to provide tax relief to the individual tax payers who are in the 10% tax slab, section 87A has been inserted to provide a rebate from the tax payable by an assessee,being an individual resident in India, whose total income does not exceed Rs. 5,00,000.

(ii) The rebate shall be equal to the amount of income-tax payable on the total income for any assessment year or an amount of  Rs. 2,000, whichever is less.

(iii) Consequently, any individual having total income up to Rs. 2,20,000 will not be required to pay any tax. Further, every individual having total income above Rs. 2,20,000 but not exceeding  Rs. 5,00,000 shall get a tax relief of Rs. 2,000. In effect, the rebate would be the tax payable or Rs. 2,000, whichever is less.

(iv) Consequential amendment has been made in section 87 providing that in computing the amount of income-tax on the total income of an assessee with which he is chargeable for any assessment year, rebate as computed under section 87A shall be allowed.

(v) Further, the aggregate amount of rebate under section 87A shall not exceed the amount of income-tax (as computed before al owing such rebate) on the total income of the assessee with which he is chargeable for any assessment year.

(Effective from A.Y.2014-15) 

For Example you can understand the accurate situation and method of taxation after taking the benefit of this section:

The gross total income of Mr. X, a resident aged 30 years, for the P.Y.2013-14 comprises of salary Rs. 5,05,000 and interest on savings bank Rs.8,000. Compute his tax liability for the A.Y.2014-15, assuming that he has deposited Rs. 50,000 in public provident fund.  

Solution:

Computation of total income of Mr. X for the A.Y.2014-15

Salary                                                                 Rs. 5,05,000

Interest on savings bank account                          Rs. 8,000

Gross Total Income                                             Rs. 5,13,000

 Less: Deductions under Chapter VIA

          Section 80C (deposit in PPF)                    Rs.  50,000

            Section 80TTA (interest on savings bank account)  Rs. 8,000 

            Total Income                                        Rs.     4,55,000

            Tax on total income@10% of  Rs. 2,55,000 ( Rs. 4,55,000 – 2,00,000) = Rs. 25,500

             Less: Rebate under section 87A                   Rs. 2,000

                                                      Tax                        Rs. 23,500

             Add: Education cess@2%                               Rs.  470

            Secondary and higher education cess@1%       Rs. 235

           

            Total tax liability                                           Rs.  24,205