How to check whether you are eligible for the Tax Rebate on Rs 5 Lakhs Taxable Income u/s 87A?

How to check whether you are eligible for the Tax Rebate on Rs 5 Lakhs Taxable Income u/s 87A?


Interim Budget 2019-2020 has brought some benefits and rebates to taxpayers. One among is Zero tax or No income tax for Rs 5 Lakhs taxable income. Many experts interpreted them in various ways. It was indicated in the budget that your taxable income should be below Rs 5 Lakhs to get a tax rebate. If your taxable income crosses Rs 5 Lakhs per annum, normal income tax slab rates would apply and no rebate would be given. How to check whether you are eligible for this Rs 5 Lakhs Income Tax Rebate? What all components can be reduced from gross taxable income to arrive at taxable income to get this rebate? Let me provide some thoughts on this.

Also Read: 10 High Return Mutual Funds to invest in India

What are Income tax slabs for FY2019-2020?


Let us first check the income tax slabs applicable for various individuals. Means these slabs are applicable in general before any income tax rebate is provided for Rs 5 Lakhs.

Income Tax Slabs for FY2019-2020 - AY2020-2021-r

What is Rs Tax Rebate on 5 Lakhs Taxable Income referred in the budget?


Budget 2019 indicates that if an individual gets Rs 5 Lakhs taxable income or below in a financial year, there would be income tax rebate and no income tax is applicable. Means income tax rebate is not applicable to all tax payers. This applies only for specific eligible tax payers.

What is the Tax rebate available u/s 87A from FY2019-2020 onwards?


Currently upto Rs 2.5 lakhs there is no income tax. You need to pay 5% income tax between Rs 2.5 Lakhs to Rs 5 Lakhs. Means you might be paying Rs 12,500 per annum. There was exemption given earlier u/ 87A for Rs 2,500. Means the net outflow would have been Rs 10,000 if your taxable income was Rs 5 Lakhs earlier. Now all tax payers with Rs 5 Lakhs taxable income would additionally save for Rs 10,000 beyond Rs 2,500 tax rebate which is already existing.

How to check whether you are eligible for the Tax Rebate on Rs 5 Lakhs Taxable Income u/s 87A proposed in the budget?


All Resident Indians who have taxable income of Rs 5 Lakhs from FY2019-2020 (Assessment Year 2020-2021) onwards eligible for income tax rebate u/s 87A. Let us check how Rs 5 Lakhs taxable income is computed.

Part-1: Income from salary, pension, business income, etc., is classified here.

Part-2: Deductions which you are eligible under various sections like 80c, 80D etc.,

Part-3: Taxable income is computed which is Part-1 minus Part-2

If your Taxable income (Part-3 indicated above) is less than or equal to Rs 5 Lakhs, you would get income tax rebates and no income tax is payable.

What are the eligible deductions to reduce from gross income to claim income tax rebate u/s 87A?


Here are the list of deductions that can be claimed from gross income to arrive at Taxable Income.

I) Section 80C upto Rs 1.5 Lakhs: Majority of the salaried individuals would claim this amount to the highest extent. Investment in ELSS Funds, PPF, NSC, Pension Funds, Life Insurance, etc., would be forming part of 80C upto Rs 1.5 Lakhs.

II) Health Insurance premiums can be claimed u/s 80D – Maximum of Rs 50,000 (sr. Citizens Rs 60,000)

III) Investment u/s 80CCD for NPS – Maximum of Rs 50,000

IV) Interest on repayment of educational loan to claim u/s 80E – No limit

V) Donations made to claim u/s 80G

VI) HRA claim u/s 10 (13a) – Limit is as per the guidelines

VII) Interest on home loan u/s 24B – up to Rs 2 Lakhs on self occupied property.

VIII) Medical Expenses on handicapped dependent to claim u/s 80DD – No limit

XI) Medical Expenses for specific diseases u/s 80DDB

X) Claim u/s 10(5) – Leave Travel Allowance (LTA) – Limit is as per grade in the company

XI) Standard Deduction of Rs 50,000 per year from FY2019-2020 onwards

You can refer this article which gives you more info about all these Tax saving investment options.

If you can reduce all these deductions from your gross taxable income, it would be net taxable income. If your net taxable income is <=Rs 5 Lakhs, you would get income tax rebate, i.e. no income tax payable from FY2019-2020 onwards.

Now let us see who is really eligible for this tax rebate with some examples.

Example-1 – Individuals who are falling within the limit of Rs 5 Lakhs Taxable income and eligible for income tax rebate. These individuals need not pay any income tax. Gross Income and deductions are for illustration purpose only. In reality you can claim higher deductions.


Tax Rebate under section 87A for Rs 5 Lakhs Taxable Income - Illustration-1-rev

Example-2 – Individuals who are falling on the border line of below Rs 5 Lakhs Taxable income and eligible for income tax rebate. These individuals need not pay any income tax. Gross Income and deductions are for illustration purpose only. In reality you can claim higher deductions.


Tax Rebate under section 87A for Rs 5 Lakhs Taxable Income - Illustration-2-rev

Example-3 – Individuals who are falling on the upper side of the border line of Rs 5 Lakhs Taxable income and NOT eligible for income tax rebate. These individuals HAVE to pay income tax. Gross Income and deductions are for illustration purpose only. In reality you can claim higher deductions.


Tax Rebate under section 87A for Rs 5 Lakhs Taxable Income - Illustration-3-rev

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Example-4 – Individuals who are falling outside the limit of Rs 5 Lakhs Taxable income and NOT eligible for income tax rebate. These individuals need HAVE to pay income tax. Gross Income and deductions are for illustration purpose only. In reality you can claim higher deductions.


Tax Rebate under section 87A for Rs 5 Lakhs Taxable Income - Illustration-4-rev

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Suresh

How to check whether you are eligible for the Tax Rebate on Rs 5 Lakhs Taxable Income u/s 87A?

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  1. Ur all article is awesome….My total yearly income is 480000 rs…If i invest just 50000 per month in 80c…Then how much income tax will i have to pay in 2019 -20…I m investing 2000 per month in aditya birla tax relief 96 fund….If in year 2019-20 my income tax will be zero, then I want to stop sip in aditya bila 96 fund ….And I want new sip.please suggest me fund

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