Income Tax Rebate under section 87A

While presenting the budget 2013 speech, the finance minister, P. Chidambaram had said, “I propose to provide a tax credit of Rs 2000 for every person whose annual income is up to RS. 5 Lakh.’’ This means that every individual earning income below Rs 5 Lakh is eligible for an Income Tax Rebate under section 87A of Rs 2000. This Rebate is aimed at giving relief to those individuals who fall in the tax bracket of Rs 2 to Rs 5 Lakhsand also leave travel allowance from Ita section 105. The new section of Income Tax Rebate under section 87A of the Income Tax Act of 1961 has been inserted with effect from the first day of April 2014. When you will be filing for your income tax return for the Financial Year 2013-2014, you will get a rebate of up to Rs 2000.

Many of us are still confused about this rebate and how it needs to be calculated. It simply means that Rs 2000 needs to be subtracted from the total tax payable by an individual and not the total income of an individual. Income Tax Rebate under this section 87A is available only to male and female individuals, and senior citizens. Companies, Partnership firms, HUF, etc., do not qualify for the Income Tax Rebate. It is available only to resident individuals. Non-resident individuals are not eligible for the Income Tax Rebate under Section 87A. Super senior citizens (individuals above 80 years), will not benefit from this rebate as their income up to Rs 5 Lakh has already been completely exempted from the levy of Income Tax. 

The Income Tax rebate is allowed before adding Education Cess and Secondary and Higher Education Cess. It means that first the rebate of Rs 2000 needs to be deducted from the total tax payable after which the Secondary and Higher Cess and Education Cess will be added to the amount of tax payable. In case if the tax payable amount is less than Rs. 2000, then no refund will be given. Additionally, if an individual has an annual income of above 5Lakhs, then he will not be eligible for the Income Tax Rebate under section 87A of the Income Tax Act of 1961.