Although I'm too late to mention it, still I'm earlier than it's actual necessity for Current Financial Year 2014-15. And I'm here with this stuff because many of the individuals are having so many queries regarding Rebate under section 87A.
Finance(No. 2) Act, 2014 enacted on 6th August, 2014, published in the Gazette of India, dated 6th August 2014 as Act No. 25 of 2014. The Act has not discontinued the said rebate of Rs. 2000 in tax liability u/s 87A, even though the threshold exemption limit is increased from Rs. 200,000 to Rs. 250,000 (and from Rs. 250,000 to Rs. 300,000 for senior citizen of age 60 years or above) by the Act, but the even is silent regarding rebate withdrawal.
Before moving ahead, let me quote Section 87A as introduced in Finance Act, 2013 and NOT amended thereafter:
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.
Therefore, the rebate is still not vanished for current Previous Year (i.e. Financial Year 2014-15 in Assessment Year 2015-16) or subsequent Previous Years and can be claimed by eligible individual resident in India accordingly.
Eligibility to get tax rebate upto Rs. 2000:
- Either salaried employee or a business entrepreneur or any other Indian resident individual only (not any other like NRI, HUF, Firm, AOP/BOI etc.).
- Although income may be earned through foreign sources by a resident individual.
- Computed income for finally charging tax [for elaborative understanding i.e. net taxable income after deducting deductions under section 10 with other related sections and chapter VI-A (Sections 80C to 80U), section 16(for salaried employees), section 24(b) interest on house loan, etc.] must be less than or equal to Rs. 500,000.
Points to ponder:
a. Firstly this is a rebate from tax, so (except for checking eligibility) calculate it only after calculating final tax liability and avail (i.e. deduct) from tax before adding education cess to calculated tax liability.
b. For salaried employees w.r.t. 87A of Income Tax Act as informed by Income Tax Department (ITD), rebate u/s 87A may be claimed by an Assessee in the Income Tax Return (ITR) only. There is no provision for reporting the same in the TDS/TCS statement. CPC-TDS may generate default for short deduction in case the same is considered for TDS computation but not reported in salary statement Form 24Q.
c. Therefore it's advisable for SALARIED EMPLOYEES to claim rebate through filing Income Tax Return (ITR), even though employer has considered rebate while deducting tax at source (i.e. TDS).
d. And even if the tax payable becomes NIL after availing rebate u/s 87A as shown in below example, filing of ITR is mandatory.
e. Also notice, it's nowhere related with the basic exemption limit, although it notionally raises the threshold if above parameters are satisfied. But kindly do not perceive that your threshold is increased from Rs. 250,000 to Rs. 270,000 (or from Rs. 300,000 to Rs. 320,000 for senior citizen) in current year after considering rebate. And calculate it separately as stated in below example.
Supreme Example:
Now the same can be understood through an example consisting of recent amendments in various limits for Previous Year 2014-15(Assessment Year 2015-16):-
| Particulars |
Individual (Age<60 years) |
Senior Citizen (Age 60 or above) |
|---|---|---|
| Salary (Taxable Part) | 800,000 | 665,000 |
| HP(Interest on Home Loan)* | (-)200,000 | (-)200,000 |
| IOS(Saving A/c Interest) | 10,000 | 10,000 |
| Gross Total Income (GTI) | 610,000 | 475,000 |
| Less: Deduction u/s 80C* | (-)150,000 | (-)150,000 |
| Less: Deduction u/s 80TTA | (-)10,000 | (-)10,000 |
| Total Income<=500,000/- | 450,000 | 315,000 |
| [Tax Calculation] | (450,000-250,000)*10% | (315,000-300,000)*10% |
| Income Tax Liability* | 20,000 | 1,500 |
| Less: Rebate u/s 87A | (-)2,000 | (-)1,500 |
| Tax After Rebate | 18,000 | 0 |
| Add: Ed.Cess& SHEC(3%) | 540 | 0 |
| Net Tax Payable | 18,540 | 0 |
* Limit increased in current year 2014-15 for all.
Therefore, even though your salary (or business income) is about Rs. 800,000, you may become eligible (being resident individual in India) for availing rebate in tax for Rs. 2,000/-.
The author CA. Akhil Maheshwari is a well-known consultant as well as Representative & Director at CAR-The Professional Study Empire, can be reached at ca.akhilmaheshwari@gmail.com or on Facebook click here.
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