CALCULATION OF REBATE U/S 87A AFTER BUDGET 2017 FY 2017-18

 RAJA BABU Wednesday, February 1, 2017

CASH PAYMENT LIMIT REDUCED TO Rs 10000/- FROM Rs 20000/- EARLIER .RULES ALSO APPLICABLE ON CAPITAL EXPENSES

RESTRICTION ON CASH TRANSACTION OF 3 LAKH OR MORE

MAJOR CHANGES IN INCOME TAX BUDGET-2017

BUDGET SPEECH FINANCE MINISTER 01.02.2017

INCOME TAX CALCULATOR AFTER BUDGET-2017

Rebate of income-tax in case of certain individuals before Budget -2017

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 five thousand rupees, whichever is less.

• Means deduction is available in Fy 2016-17 for Taxable income up to Rs 500000/- and Maximum rebate is Rs 5000.

Amendment proposed in Finance Bill 2017

38. In section 87A of the Income-tax Act, with effect from the 1st day of April, 2018,—

(a) for the words “five hundred thousand rupees”, the words “three hundred fifty thousand rupees” shall be substituted;

(b) for the words “five thousand rupees” [as substituted by section 46 of the Finance Act, 2016],

the words “two thousand five hundred rupees” shall be substituted.

Revised Section after Budget 

87A. An assessee, being an individual resident in India, whose total income does not exceed three hundred fifty thousand rupees 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 five hundred rupees five thousand rupees , whichever is less.

Explanation given to the provision in Budget-2017

The existing provisions of section 87A provide for a rebate up to Rs. 5000 from the income-tax payable to a resident individual if this total income does not exceed Rs. 5,00,000.

In view of proposed rationalisation of tax rates for individuals in the income slab of Rs. 2,50,000 to Rs.5,00,000,it is proposed to amend section 87A so as to reduce the maximum amount of rebate available under this section from existing Rs. 5000 to Rs. 2500. It is also proposed to provide that this rebate shall be available to only resident individuals whose total income does not exceed Rs. 3,50,000.

This amendment will take effect from 1 April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.

• Means Revised rebate u/s 87A is available for Taxable income is up to Rs 350000/- and Maximum rebate is Rs 2500/-  available.So if your income is more than 350000/- then this rebate is not available.

Confusion in Taxpayers mind is due to Finance Minister statement as under

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I, therefore, propose to reduce the existing rate of taxation for individual assesses between income of `2.5 lakhs to `5 lakhs to 5% from the present rate of 10%. This would reduce the tax liability of all persons below `5 lakh income either to zero (with rebate) or 50% of their existing liability. 

In order not to have duplication of benefit, the existing benefit of rebate available to the same group of beneficiaries is being reduced to `2500 available only to assessees upto income of `3.5 lakhs. The combined effect of both these measures will mean that there would be zero tax liability for people getting income upto `3 lakhs p.a. and the tax liability will only be `2,500 for people with income between `3 and `3.5 lakhs. If the limit of `1.5 lakh under Section 80C for investment is used fully the tax would be zero for people with income of `4.5 lakhs.

While the taxation liability of people with income upto `5 lakhs is being reduced to half, all the other categories of taxpayers in the subsequent slabs will also get a uniform benefit of `12,500/- per person. The total amount of tax foregone on account of this measure is `15,500 crores.

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From the above  line in read color FM says that Income tax up to 5 lakh is being reduced to half . However as per actual the tax reduction by 50 % is  before rebate of 87A But after withdrawal of  section 87A  for income above 3.5 Lakh the tax benefit is reduced. 

In fact in case of  Person Income  having income of Rs 350001/- age less than  60 years there is no change in tax payable from Fy 16-17 due to withdrawal of 87A from income above Rs 350000/- 

Further in case of  Person Income  having income of Rs 350001/- age 60-80 (sr citizen) tax has been increased by Rs 2575/- from Fy 16-17.

Many News channel also mis-reporting that income tax up to Rs 500000 income is halved.

But the actual calculation Is given as under.

TAX BENEFIT FOR TAXABLE INCOME OF RS 350001/-BUDGET-2017
TYPE OF PERSON	OLD TAX	NEW TAX	BENEFIT
INDIVIDUAL <60years amp="" huf="" span="">	5150	5150	0
SR CITIZEN 60-80 YEARS OLD	0	2575	-2575
SR CITIZEN 80 YEARS AND ABOVE	0	0	0

TAX BENEFIT FOR TAXABLE INCOME OF RS 400000/-BUDGET-2017
TYPE OF PERSON	OLD TAX	NEW TAX	BENEFIT
INDIVIDUAL <60years amp="" huf="" span="">	10300	7725	2575
SR CITIZEN 60-80 YEARS OLD	5150	5150	0
SR CITIZEN 80 YEARS AND ABOVE	0	0	0

TAX BENEFIT FOR TAXABLE INCOME OF RS 500000/-BUDGET-2017
TYPE OF PERSON	OLD TAX	NEW TAX	BENEFIT
INDIVIDUAL <60years amp="" huf="" span="">	20600	12875	7725
SR CITIZEN 60-80 YEARS OLD	15450	10300	5150
SR CITIZEN 80 YEARS AND ABOVE	0	0	0

Other points of Rebate u/s 87A for Fy 2017-18

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 3.50 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  3.50 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 2500/-
10. Education Cess & Secondary & Higher education cess is to be calculated after allowing the rebate under section 87A on  balance tax due. 

Examples (you may also check online calculator for Fy 17-18 online  here)

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. 3.50 lakh. is to be considered as per Sr no (6) in the  example given below.
4. Maximum rebate allowed is Rs 2500/- of Tax due as per point (7) in example ,whichever is lower.

CALCULATION OF 87A AFTER BUDGET-2017 AMENDMENT
Sr No	Particulars	Individual less than 60 year of age
1	Salary Income	785000	550000	800000	700000	600000
2	Income From house property Income(loss)	-150000		-150000	50000	-50000
3	Income from other source	15000	10000	15000	15000	15000
4	Gross Total Income (1-3)	650000	560000	665000	765000	565000
5	Less :Deduction u/s 80C to 80U
	80C	150000	150000	150000	150000	150000
	80CCG	25000
	80DD/80U	75000		75000		75000
	80DDB	40000		40000	40000	40000
	80TTA	10000	10000	10000	10000	10000
5	Total deductions	300000	160000	275000	200000	275000
6	Total Income (4-5)	350000	400000	390000	565000	290000
7	Income Tax (on 6)	5000	7500	7000	25500	2000
8	less:Rebate u/s 87A Subject to max 2000/- Maxi income 3.5 lakh	2500	0	0	0	2000
9	Net Tax (7-8)	2500	7500	7000	25500	0
10	Add : Cess( 3 % on 9)	75	225	210	765	0
11	Total Tax (9+10)	2575	7725	7210	26265	0
Sr No	Particulars	Individual age 60-80 year
1	Salary Income	700000	500000	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	507000	665000	765000	665000
5	Less :Deduction u/s 80C to 80U
	80C	150000	150000	150000	150000	150000
	80CCG	25000
	80DD/80U	75000		75000		75000
	80DDB	40000		40000	40000	40000
	80TTA	10000	7000	10000	10000	10000
5	Total deductions	300000	157000	275000	200000	275000
6	Total Income (4-5)	365000	350000	390000	565000	390000
7	Income Tax (on 6)	3250	2500	4500	23000	4500
8	less: Rebate u/s 87A Subject to max 2500/- Maximum income 3.5 Lakh	0	2500	0	0	0
9	Net Tax (7-8)	3250	0	4500	23000	4500
10	Add : Cess( 3 % on 9)	98	0	135	690	135
11	Total Tax (9+10)	3348	0	4635	23690	4635

Read more: http://www.simpletaxindia.net/2017/02/calculation-of-rebate-us-87a-after.html#ixzz4XRmxikNV