Income Tax Rebate Rs. 2000, How Will Apply?

As per provisions of Indian Income tax section 87A of the Income - tax Act introduced with effect from April 1, 2014 if the income of the resident individual after deduction towards PPF, PF, ELSS, NSC, Life insurance Premium, etc. is less than Rs. 5 lakhs then such individual is entitled to a tax rebate of Rs.2,000. It is to be noted that if the income tax liability is less than Rs.2,000 the rebate shall be restricted to that amount.

The following example explains the position-

Example-

SITUATION I

Total income-   Rs. 3.7 lac
80 C Investment Rs. 1 lac
Taxable Income Rs. 2.7 lac

Basic Exemption Rs.2.5 lac

Applicable tax rate 10 %

Tax before applying provisions of 87A of the Income-tax Act- Rs.2,000 (10% of Rs. 20,000)

Rebate under section 87A restricted to - Rs.2,000

Income Tax due –NIL

SITUATION II

Total income-   Rs. 4.8 lac

80 C Investment Rs.1.5 lac
Taxable Income Rs. 3.3 lac
Basic Exemption Rs.2.5 lac

Applicable income tax rate 10%

Tax before applying provisions of 87 A of the Income-tax Act- Rs.8,000

Rebate under section 87A- Rs. 2,000

Tax before education cess –Rs.6,000

Education cess at 3% Rs. 180

Total tax plus cess Rs.5820

SITUATION - III

Total income-   Rs.7,10,000

80C to 80 U - Investment Rs.1.5 lac
Taxable Income Rs. 5.6 lac

Basic Exemption Rs.2.5 lac

Applicable income tax rate 10% up to Rs.5 lac and 20% beyond Rs.5 lac in this case

As Taxable income exceeds Rs.5 lac rebate under section 87A is not available in this case.

Tax before education cess Rs.25,000 + Rs. 12,000 = Rs. 37,000

Education cess at 3% is  Rs. 1110

Total tax plus cess  is Rs.38,110

No Rebate under section 87A

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