Rebate u/s 87A: Analysis with 7 Commonly asked questions

Under the Income Tax Act, 1961, Rule for rebate u/s  87A has been inserted and in the Budget Speech, by The Honorable Finance Minister had said that, “Nevertheless, I am inclined to give some relief to the tax payers in the first bracket of Rs. 2 Lakh to Rs. 5 Lakh. Assuming an inflation rate of 10% and a notional rise in the threshold exemption from Rs. 2,00,000/- to Rs. 2,20,000/- I propose to provide a tax credit of Rs. 2,000/- to every person who has a total income up-to Rs. 5 Lakh”.

Brief Analysis : Rebate u/s 87A:

The amendment has been brought with the introduction of a new Section 87A in the purviewIncome Tax Act, 1961.It is to be seen that, the above amendment does not prescribe that basic Exemption Limit (for tax remission) has been raised from existing limit Rs. 2,00,000/- to Rs. 2,20,000/-.It is applicable for Assessment Year 2014-15 and thereafter.

The section was introduced in the form of Rebate and hence it is not a kind of deduction, which means that anincome tax assesse will get reduction (rebate) in the “Income tax amount payable” by them.

Applicability

Further, it is to be noted that the same is available ONLY to an ‘INDIVIDUAL’ assesses residing in India and whose“Total Income”does not exceeds Rs. 5 Lakh during the PY.However, the above rebate is not available to a super senior citizen (Age>80 Years), since they are already fully exempted up to Rs. 5 lakh.

Further, the same is not available to a Non-resident individual (NRI’s).

When income tax Rebate is Available?

If the total tax payable is less than Rs. 2000/-, rebate u/s 87A  is restricted to “total tax payable”.

8 Commonly Asked Questions (CAQs) regarding section 87A

Q-1. Whether basic exemption limit for Individuals, HUF’s, AOP & BOI under the Income Tax Act, 1961 has been raised from Rs. 2,00,000/to Rs. 2,20,000/-?

Ans.NO, kindly note that the basic exemption limit will remains unchanged at Rs. 2 Lakh for FY 2013-14 (AY 2014-15).

Q-2. In the Budget 2013 Speech, The Finance Minister had said, “Nevertheless, I am inclined to give some relief to the tax payers in the firstbracket of Rs. 2 Lakh to Rs. 5 Lakh. Assuming an inflation rate of 10% and anotional rise in the threshold exemption from Rs. 2,00,000/- to Rs. 2,20,000/- Ipropose to provide a tax credit of Rs. 2,000/to every person who has a total income upto Rs. 5 Lakh. 1.8 crore tax payers are expected to benefit to the value of Rs. 3,600 crore. ”So doesn’t it mean that the exemption has been raised by Rs. 20,000 and taxrelief of Rs. 2,000/given to every person?

Ans. No, it doesn’t mean that!!!, as clarified in Q1 above ,Basic Exemption Limit has not been increased.

Q-3. Whether there is any condition for availing this benefit?

Ans. Yes, this benefit is available only if the total income of the assesse doesn’t exceed Rs. 5 Lakh.

Q-4.Let say the income is Rs. 5,50,000/and assesse has paid Life Insurance premium of Rs.50,000/. Will the assesse be eligible to claim the rebate under section 87A?

Ans. Yes, because the ‘Total Income’ after deducting all the deductions available under Chapter VI from the ‘Gross Total Income’ shall not exceed Rs. 5 Lakh.

Q-5. In the Budget Speech, as quoted above, the Honorable Finance Ministerhas used the words ‘I propose to provide a tax credit of Rs. 2,000/to every person.” and person also includes a HUF?

Ans. The words used in the budget speech are for general understanding and have no statutory implications.

Q-6.How will this benefit will be available to a senior citizen (aged 60 years or above) because the exemption limit in his case is already Rs. 2,50,000/- i.e. in excess of Rs. 2,20,000/?

Ans.The Tax Rebate of Rs. 2,000/isalso available to a senior citizen, if the total income is Rs. 5 Lakh or less. It means that, a senior citizen, need not pay any tax on total income of upto Rs. 2,70,000/.However, it is to be noted that thisbenefit is not available to a super senior citizen (aged 80 Years or above) as his totalincome up to Rs. 5 Lakh is already fully exempted.

Q-7. Whether this rebate is also available to Non-Resident?

Ans.No, the Rebate under section 87A is not available to non-resident persons.It isavailable only to resident of India subject to above conditions stated above.

Q-8. Whether Return is required to be filed when the Total Income is upto Rs. 2,20,000/and after rebate, no tax is payable?

Ans. Yes, Income Tax Return is required to be filed as usual.In fact Income taxreturn is required to be filed if your Gross Total Income(Income before deductionu/s 80C to 80U) is more than exemption limit.

Conclusion

On the closing note I just want to state that the finance minister has done a great deal for the middle class people by giving such an exemption by rebate u/s 87A.  Because it really saved many people from paying taxes upto Rs. 2,000 so it was like a “small move but a great impact”. Hence, every taxpayer having total income of up-to Rs. 5,00,000 shall need to consider the same.