Calculating Rs 5000 Tax Rebate Sec 87A of Income Tax from 2016-17

Calculating Rs 5000 Tax Rebate Sec 87A of Income Tax from 2016-17 - Clarifications -  The Tax Rebate which was earlier ₹ 2000 has been raised to Rs.5000 from AY 2017-18. w.e.f. 1.4.2017. In the Budget Speech, it has been proposed to raise the Tax Rebate to Rs. 5000.
Income Tax Rebate Increased : The income tax rebate is increased by Rs 3000. In the FY 2015-16, it was Rs 2000, now the tax rebate is ₹ 5000. This rebate is available to those whose taxable income is below 5 lacs. It means, that the tax liability of such people would come down by Rs 5000. Because of this provision, those who earns up to Rs 3 lacs are not required to pay any tax. Rather, if a person uses the all available deductions, the income up to Rs 5 lacs can become tax-free.

As per the Income Tax Financial Act 2013-14, the new Section 87A is introduced w.e.f. 1.4.2014. It is a big relief as the Rebate of Rs.5000 is announced for the Individuals having Income between Rs.2,50,000  Rs.5,00,000. Now there are lot of doubts on how to avail the Rebate from Income Tax. Some are asking that whether the Basic Income Limit for Individuals has raised to Rs.3,00,000 and basic exemption limit is raised ?.  Let us discuss some important points on availing rebate with reference to the Income Tax Act 2016-17 and Finance Minister's Financial Budget speech.

Calculating Rs.5000 Tax Rebate under Sec 87A of Income Tax Financial Act

As per the Circular No.1/2017 of the Income Tax Dated 2.1.2017 Para NO.6
Finance Act 2013 provided relief in the form of rebate to individual taxpayers, resident in India, who are in lower income bracket, i. e. having total income not exceeding Rs 5,00,000/-. The amount of rebate available under section 87A is Rs 5000/- or the amount of tax payable, whichever is less from AY 2017-18
Actually the Rebate Rs.2000  under Sec 87A is inserted  after the Sec 87 of the Income Tax Finance Act 2013 and is as follows:

87A. [Omitted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.]
The following section 87A shall be inserted after section 87 by the Finance Act, 2013, w.e.f. 1-4-2014 :
Rebate of income-tax in case of certain individuals.
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 two thousand rupees, whichever is less.

Clarifications on Sec 87A from AY 2017-18:
  1. This Sec 87A Rebate of Rs.5000 is applicable to Individuals Indian Male and Female Residents only.
  2. Basic Exemption Limit has not been increased. (Rs. 2.5 Lakh for Below 60 Years More Detailed particulars -- Click Here)
  3. This Relief is applicable to all Individuals only if the Total Income is less than Rs.5,00,000
  4. This Section 87A is w.e.f 1.4.2017 means, it is applicable from Assessment Year 2017-18, means for those who are filling their Income Tax Returns for the Financial Year 2016-17.
  5. Tax Rebate is also applicable to Senior Citizens upto Rs. 5,00,000 Income.
  6. First Calculate the Total Taxable Income after making all Possible and eligible Deductions from your Income. ( If the Total Taxable Income is Less than Rs.5,00,000 then you are to eligible claim a Rebate of  Rs.5000). details at
  7. From the previous step, we get  The Income liable to Tax at Normal Rates.
  8. From the Income Liable to Tax, Calculate the Income Tax.
  9. Now Deduct Max of Rs.5000 as Rebate.
  10. Means It is deductible from income-tax before calculating education cess. The amount of rebate is 100 per cent of income-tax or Rs. 5000, whichever is less.
  11. After deducting the Rebate, pay the tax after calculating the education cess,  That's it.
Model Calculation of Rs.5000 Rebate in Income Tax as per Section 87A
  1. Let us assume that Your Gross Income is Rs.480000
  2. All Deductions and Exemptions is Rs.100000 and Your Total Income after applying all eligible deductions is Rs.3,80,000.
  3. Hence, Now the Net Taxable Income will become Rs.3,80,000.
  4. Now, applying 10% Tax on Rs.1,30,000 (Rs.3,80,000 - Rs.2,50,000) will be Rs.13000.
  5. As the Taxable Income is Less than Rs.5,00,000, apply Tax Rebate u/s 87A upto a Max of Rs.5,000.
  6. Hence Tax is Rs.13,000 - Rs.5,000 = Rs.8,000.
  7. Add Education Cess, Higher and Secondary Education Cess 3%  on Rs.8,000 and Pay the Tax.