Finance minister Mr. Chidambaram has inserted section 87A by allowing a tax credit/rebate of Rs. 2000 to all resident individuals who are having taxable income up to Rs. 5, 00,000. With the introduction of this new section 87A our finance minister has expectation of providing benefits of Rs. 3, 600 crore to individual tax payers.
Income tax slab rates of last year (i.e. FY 2012-2013) will remain unchanged this year (i.e. FY 2013-2014). With this introduction, income of an individual will be taxable at a rate that was applicable last year.
Such income tax rebate of Rs. 2000 will be applicable to a resident individual who can be an ordinarily resident or not ordinarily resident of India. As per section 87A rebate of Rs. 2000 will be available only if the tax payer’s income is up to Rs. 5, 00,000 after allowing income tax deductions as applicable to him from the gross total income. However if the income tax liability is less then Rs. 2000 then rebate under section 87A will be restricted to the income tax liability.
Rebate under section 87A will be available before adding surcharge and education cess to income tax liability. That means after providing rebate (i.e. Rs. 2000 or income tax liability whichever is lower) from the income tax liability we need to calculate surcharge and education cess on it.
Effect of Section 87A on basic exemption limit
With the introduction of section 87A except senior citizens all other individuals having income up to Rs. 2, 20,000 will not be required to pay income tax from assessment year 2014-2015 onwards. If income of such individual is above Rs. 2, 20,000 but not exceeding Rs. 5, 00,000 a rebate of Rs. 2000 will be allowed from his income tax liability before adding surcharge and education cess to it.
Individuals being a senior citizen of India will not be liable to income tax if their total income is up to Rs. 2, 70,000. Income tax rebate of Rs. 2000 will be available under section 87A if individual not being a senior citizen has income above Rs. 2, 70,000 but not exceeding Rs. 5, 00,000.
As this provision is applicable to those resident individuals who has income not exceeding Rs. 5, 00,000 this provision will not be applicable to resident individual who is at least of 80 years of age at any time during the previous year. Resident individual who is at least 80 years of age at any time during the previous year will not be taxable up to Rs. 5, 00,000 as the basic exemption limit for these individuals are remain unchanged to Rs. 5, 00,000.
Section 87A is applicable only to resident individuals. It is not applicable to a non resident individual, resident or non resident HUF/AOP/BOI or any taxpayer other than resident individual.
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