Saturday, March 2, 2013

NEW INCOME TAX REBATE RS 2000/- SECTION 87A FAQ


on Saturday, March 2, 2013

Income Tax Credit/REBATE of Rs. 2,000 - Detailed Analysis / FAQ’s

Read /download rebate 87A examples in EXcel from here 

Q1. 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, the basic exemption limit remains unchanged at Rs. 2 Lakh for FY 2013-14 (AY 2014-15).

Q2. In the Budget 2013 Speech, The Finance Minister had said, “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 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 tax relief 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.

Q3. So what is the point? Many people are saying that the exemption has been raised by Rs. 20,000/-. I am confused!

Ans. It means that though threshold exemption remains unchanged, tax benefit of upto Rs. 2,000/- is given.

Q4. How that is made possible?
Ans. This has been made possible by inserting a new section 87A in the Income Tax Act,1961 which allows REBATE of upto Rs. 2,000/- from the income tax payable.

Q5. Whether there is any condition for availing this benefit?
Ans. Yes, this benefit is available only if the income doesn't exceed Rs. 5 Lakh.

Q6. Say my income is Rs. 5,50,000/- and I have paid Life Insurance premium of Rs.50,000/-. Will I be eligible to claim the rebate?
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.

Q7. That’s great!! I am filing IT returns for myself and as Karta of HUF, so I can take total benefit of Rs. 4,000/-.
Ans. No, this rebate is available ONLY to an ‘INDIVIDUAL’ tax payer, resident in India.

Q8. But in the Budget Speech, as quoted above, the FM 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. As per new section 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.”

Q9. Ohhh… but is it available to both Male and Female assesses? 
Ans. Yes.

Q10. How will this benefit a senior citizen (age 60 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. Tax Rebate of Rs. 2,000/- is also available to a senior citizen, if the total income is Rs. 5 Lakh or less. Effectively, it means, a senior citizen, both male and female, need not pay any tax on total income of upto Rs. 2,70,000/-. However, this benefit is not available to a super senior citizen (age 80 or above) as his total income up to Rs. 5 Lakh is already fully exempted.

Q11. The rebate of Rs. 2000/- is available from which year?
Ans. The new section has been inserted with effect from the 1st day of April, 2014 means it is applicable for Assessment Year 2014-15 and thereafter. In simple words, when you will be filing your income tax return for the Financial Year 2013-14, you will get rebate of up to Rs. 2000/-

Q12. Ok… Can we say that a new type of deduction has been provided for individuals?
Ans. A ‘deduction’ is given under Chapter VI from the gross total income, but this is a ‘rebate’ under Paragraph A of Chapter VIII of the Income Tax Act, 1961 which is deducted from the income-tax payable.

Q13. Whether this rebate is also available to Non resident?
Ans:No , Rebate under section 87A is not available to non resident persons.It is available only to resident of India subject to above conditions stated above.

Q14. If the Total Income is say; Rs. 2,15,000/-, Income tax computes to Rs. 1500/- and Rebate of Rs. 2000/- allowed. Does it mean refund of balance Rs. 500 is available?
Ans. No refund is available because rebate is restricted to the amount of income tax payable.

Q15. 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 tax return is required to be filed if your Gross Total Income(Income before deduction u/s 80C to 80U) is more than exemption limit.

Note: Anyone shall not use this article for commercial purposes, without my permission. I have seen some people and websites publishing my articles without giving due credit to me, and it hurts.

By:Manoj Agarwal,FM-29, Basanti Colony, Rourkela – 769012.E:Mail: tax2001-it@yahoo.com

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  1. very very clear cut explanation... Thanx....

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  2. This is very useful article in connection with a rebate has been provided in this finance bill 2013, A lot of person will get to know about its legal transition.

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  3. very simple clarification.. given above for credit allowed for ordinary people whose income not exceeding from rupees 5.0 lacs.

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  4. very much clear.

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  5. Thank you very very much Sir.....

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  6. Thanks a lot. This has cleared all doubt. :)

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  7. Enjoyed a lot reading these FAQ on Special deduction of Rs 2000

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  8. Hi,
    Thanks for sharing useful article.

    I have one quary, will rebate be available for No PAN Tax U/s 206AA.

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    Replies
    1. 206AA is section related to tax deducted at source , tax liability is not fixed /determined by section 206AA .

      However ,it is very much clear that if there is no Liability of employee from salary then no deduction is to be made by employer whether employee has pan or not.

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  9. Thanks a lot Mr. Manoj, Please also provide a computation calculator for small business laymen like Commision or Brokerage income. Regards, Pawan Singla.

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  10. Is this rebate under section 87A can be availed for tax computed under special rate? For Eg.If Net income is Rs.510000/- which consist of LTCG Rs.300000/-. Can we avail rebate U/s 87A?

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  11. Will the deduction under 87A will be available after deducting loss from house property (interst paid on housing loan)

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    Replies
    1. yes, five lakh limit is to be check after deduction of interest from house loan

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  12. 206AA In case a pensioner of aged 60 does not possess PAN. Suppose his Income is 5,00,000, and 1,00,000 as insurance premium, His Taxable income will be (500000-1,00,000 and minus 2,50,000/ standard deduction ) 1,50,000 upon which he has to pay a tax of Rs (30,000-2,000 ) 28,000 before 3% cess. Or he will not get deduction of 1,00,000 on account of insurance premium and deduction of 2,50,000/=as standard deduction. please clarify as circular no 8/2013 dt 10- oct 2013 of Minster of finance, deptt of revenue, central board of direct taxes page 50 (calculation of Pensioner tax without PAN) and page 11 are somewhat contradictory

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  13. Waiting for your response on my earlier question about tax liability on pensioner without PAN Card. If Pension gets total pension of Rs 5,00,000/= during 2013-2014 and has insurance premium of Rs 1,00,000/= . How much he has to pay tax if he has no PAN card. Please respond

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    Replies
    1. If tax of a person with pan is nil as per income tax rules then tds under 206AA will aslo be nil.Means general exemption benefit will be pass on to person .However if tax is payable with pan then 20 % of taxable income is deductible .In your case 20% of 400000 i.e 8000 is deductible u/s 206AA.

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    2. My question is without PAN. While as your reply suggests with PAN.please clarify. SECOND how can 20% work out 8000 only

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    3. My answer is for without pan . if pan is not available than you should calculate tax in two step as under

      Step-1: calculate taxable income of person after all deductions
      Step-2 : calculate tax on income as above assuming person have pan
      Step -3 : if tax as per step -2 is nil then tax u/s 206AA is also be Nil ,if tax as step-2 is more than zero then tax u/s 206AA is 20 % of amount as per step -1 or step-3 which ever is higher

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  14. Thanks for the very informative article. One thing more I would like to ask weather the cess to be calculated after deduction of Rs. 2000/- or before?

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    Replies
    1. yes , cess is to be calculated after rebate of 2000/- Rs u/s 87A

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  15. I have found this article is very informative. at the same time you can visit section 87a of income tax act to get more details.

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  16. Insurance poliy is in the name of son and owner of the policy is his father. Can mother claim tax benefit under 80c if father does not claim

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    Replies
    1. Mother can claim only ,if she has paid the premium

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  17. Thanks to ALL for appreciating and liking my above Article. You may also reach me at servicetaxexpert@yahoo.com

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  18. Thanks for this very clear information for the tax payers. I appreciate your efforts with gratitude.

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  19. Can anybody tell me, how to apply this rebate in Form No.24Q Annecure II of etds return

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  20. The rebate of up to Rs. 2000 u/s 87A shall continue in the AY 2015-16 as the Budget 2014 has not withdrawn the same.

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