Rebate allowable under Section 87A of Income tax Act

Summary :– The rebate of Rs. 5,000 currently available under section 87A in case of an individual resident in India whose total income does not exceed Rs. 5,00,000,Finance Bill 2017  proposed to be reduced to Rs. 2,500, where the total income does not exceed Rs. 3,50,000 from A.Y. 2018-19.

Relevant Extract from Explanatory Memorandum on Finance Bill 2017

Rationalization of rebate allowable under Section 87A

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 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.

[Clause 38]

Relevant Notes on Clause 38 of Finance Bill 2017

Clause 38 of the Bill seeks to amend section 87A of the Income-tax Act relating to rebate of income-tax in case of certain individuals.

The existing provisions contained in the said section provide that 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 Chapter VIII) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent. of such income-tax or an amount of five thousand rupees, whichever is less.

It is proposed to amend the said section so as to provide that the deduction under the said section shall be allowed to an assessee, being an individual resident in India, whose total income does not exceed three hundred fifty thousand rupees, upto hundred percent. of income chargeable for any assessment year or two thousand five hundred rupees, whichever is less.

This amendment will take effect, from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years.

Relevant Extract of Clause 38 of Finance Bill 2017

Amendment of section 87A.

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.

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