Saturday, February 22, 2014

Calculation of Rebate u/s 87A with FAQ & examples In Excel


on Saturday, February 22, 2014

In Last few days many Simple Tax India Viewers have send us queries related to calculation of  rebate under section 87A of the Income Tax Act applicable from Financial year 2013-14. We have already published the FAQ on the section 87A by Manoj Aggarwal but this time we are publishing it with examples.

Before going through the analysis of the provision ,the provion is reproduced hereunder


Rebate of income-tax in case of certain individuals.

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.

The Main points everybody should note regarding rebate u/s 87A is 

  1. The rebate can be availed only by Resident Individuals .(Not available to HUF/AOP/BOI)
  2. The rebate is not available to Non -resident Individuals
  3. This rebate is also available to senior citizen.
  4. The rebate  is available if Total income is up to or less than Five lakh.
  5. The Total Income here means Income under all heads(Salary,Income from house property,Income from Business and profession, income from capital gain, Income from other sources) minus all deduction u/s 80C to U.
  6. Negative income from House property (like Interest on house loan for self occupied property) is also to be reduced /considered to get total income.
  7. Deduction u/s 80C to 80U like 80C,80D,80DD,80DDB etc also to be deducted to get total income.
  8. In simple words  Five lakh income limit is to be considered on amount on which Income tax is to be calculated.
  9. The maximum amount of rebate  is Tax due subject to maximum Rs 2000/-
  10. Education Cess & Secondary & Higher education cess is to be calculated after allowing the rebate under section 87A on  balance tax due. 



Examples
Note :
  1. The given example are prepared keeping in mind persons mainly having income under salary , so income from business & profession and capital gain has not been taken in example ,however this remains parts of Gross total income as defined in point no 5 above.
  2. All deductions under section 80C to 80U is to be considered to get total income ,we have shown few for the sake of simplicity.
  3. Five Lakh limit is to be considered as per Sr no (6) in the  example given below.
  4. Maximum rebate allowed is Rs 2000/- of Tax due as per point (7) in example ,which ever is lower.


Sr No
Particulars
Individual less than 60 year of age
1
Salary Income
700000
315000
800000
700000
400000
2
Income From house property Income(loss)
-50000

-150000
50000
-50000
3
Income from other source
15000
10000
15000
15000
15000
4
Gross Total Income (1-3)
665000
325000
665000
765000
365000
5
Less :Deduction u/s 80C to 80U






80C
100000
100000
100000
100000
100000

80CCG
25000





80DD
15000

15000

10000

80DDB
40000

40000
40000
40000

80TTA
10000
10000
10000
10000
10000

80U
100000




5
Total deductions
290000
110000
165000
150000
160000
6
Total Income (4-5)
375000
215000
500000
615000
205000
7
Income Tax (on 6)
17500
1500
30000
53000
500
8
less:Rebate u/s 87A Subject to max 2000/-
2000
1500
2000
0
500
9
Net Tax (7-8)
15500
0
28000
53000
0
10
Add : Cess( 3 % on 9)
465
0
840
1590
0
11
Total Tax (9+10)
15965
0
28840
54590
0
Sr No
Particulars
Individual age 60  year or more
1
Salary Income
700000
365000
800000
700000
700000
2
Income From house property Income(loss)
-50000

-150000
50000
-50000
3
Income from other source
15000
7000
15000
15000
15000
4
Gross Total Income (1-3)
665000
372000
665000
765000
665000
5
Less :Deduction u/s 80C to 80U






80C
100000
100000
100000
100000
100000

80CCG
25000





80DD
15000

15000

15000

80DDB
40000

40000
40000
40000

80TTA
10000
7000
10000
10000
10000

80U
100000




5
Total deductions
290000
107000
165000
150000
165000
6
Total Income (4-5)
375000
265000
500000
615000
500000
7
Income Tax (on 6)
12500
1500
25000
48000
25000
8
less:Rebate u/s 87A Subject to max 2000/-
2000
1500
2000
0
2000
9
Net Tax (7-8)
10500
0
23000
48000
23000
10
Add : Cess( 3 % on 9)
315
0
690
1440
690
11
Total Tax (9+10)
10815
0
23690
49440
23690



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

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. in FY 2012-13 my Bank had deducted tds on my fixed deposit interest @20%, as pan is not given in that account
    is there any way that this deducted tds can be taken into account in my return.
    this tds is not showing in my 26AS

    ReplyDelete
    Replies
    1. You should request bank to update your pan against your entry , thats all. They can revise their tds return

      Delete