By CA Gauri Chadha
Budget 2019 brought in too much confusion regarding Section 87A rebate . Still, a lot of people are in complete perplexity where the 5 lac threshold is concerned. In earlier Financial years, till Financial Year 18-19 t rebate was granted to a resident individual whose total income after claiming chapter VI A deductions like 80C, 80D etc., was less than Rs 3.5 lacs. The maximum rebate granted was Rs 2,500 which means if tax payable is more than Rs 2,500 then you will get a deduction of Rs 2,500 and if it is less than Rs 2,500 then no tax would be payable.
In the interim budget for the Financial year 2019-20, there were changes made in section 87A, wherein full rebate was allowed up to Rs 5 lacs on the income of Rs 12,500. So if your income tax after claiming deductions under chapter VI A is less than or equal to Rs 12,500 then you will be granted full rebate but if your income crosses the threshold of Rs 5 Lac then tax will be calculated from the basic exemption limit i.e. Rs 2.5 lac for non-senior citizens and Rs 3 lac for citizens.
Let us understand with the help of an example
|
Particulars |
Amount (Rs) |
|
Gross Income |
7,00,000 |
|
Less: Standard Deduction |
50,000 |
|
Less 80C |
1,50,000 |
|
Less 80D |
25,000 |
|
Total taxable income |
4,75,000 |
|
Total tax |
11,700 |
|
Less 87A rebate |
11,700 |
|
Tax payable |
NIL |
In the above example, since after taking all the deductions, the taxable income is less than 5 lac full tax rebate will be allowed and therefore no tax will be payable.
In the same example if the individual does not take all the chapter VI A deductions and even if his income crosses 5 lac, he will be liable to pay a hefty amount of tax.
|
Particulars |
Amount (Rs) |
|
Gross income |
7,00,000 |
|
Less standard deduction |
50,000 |
|
Less Sec 80C |
1,45,000 |
|
Total taxable income |
5,05,000 |
|
Total tax |
14, 040 |
|
Less 87A rebate |
NIL |
|
Tax payable |
14,040 |
From the above 2 examples, its clear that if your income exceeds Rs 5 lac threshold even by a small amount like 5k your tax liability has increased by Rs 14,040.
In such scenarios, it is always advisable to make further investments and bring down your total taxable income. As soon as it comes below 5 lac, there will be no tax payable.
Tip: If you have exhausted all your common deductions and still your income is above 5 lac due to which your tax payable is more than the income above 5 lac you can donate that amount u/s 80G and take a deduction of the same.
