Assessment year 2014-2015 onwards a tax rebate of Rs 2,000 under section 87A of Income tax Act 1961, is available to all resident individuals whose total income during the financial year is less than Rs 5 lakhs.
This rebate of Rs. 2000 is available only to resident individuals.
If your taxable income is exactly Rs5 lakhs or more than Rs 5 lakhs then this tax rebate of Rs 2000 will not be available.
With this rebate, only those persons will be eligible who are falling under the first 10% bracket of tax rate. If you are in 20% or 30% bracket then section 87A will not be allowed to you.
By reading the above provisions of section 87A, a general question will arise in mind that how about tax liability being less than Rs 2000. In this case, will I be eligible for tax rebate of Rs 2000 as specified in section 87A.
This doubt will clear only when you read section 87A of Income Tax act 1961. Section 87A specifies that rebate will be lower of the tax liability or Rs 2, 000.
First we have to calculate tax liability. If it is less than Rs 2,000 then rebate will be restricted to the maximum limit of tax liability.
Second question may arise to know, whether the tax rebate under section 87A, will be after charging surcharge and education cess or before that.
As per the provisions of section 87A, rebate is available only before adding surcharge and education cess.
After deducting tax rebate of Rs 2000, you have to add surcharge and education cess. Surcharge and education cess will be calculated on the net tax liability after deducting rebate under section 87A.
Budget 2015 has not proposed any change in provision of rebate applicable under section 87A. So there is no changes to the provisions of section 87A. Rebate of Rs 2000 is also available for assessment year 2015-2016 and 2016-2017.