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Revised Tax Rebate Under Section 87A (FY 2019-2020) Explained

The interim budget announced on 1st Feb 2019 has proposed a change in the tax rebate under section 87A. Here is how it will work.

 Revised Tax Rebate Under Section 87A (FY 2019-2020)

If you are resident individual and your total income after all eligible deductions is equal to or less than 5 lakh, then a rebate of Rs. 12500 applies to the total tax payable before 4% educational cess. If your tax payable before cess is less than Rs. 12500 then that entire amount is discounted.

According to the finance bill 2019,

In section 87A of the Income-tax Act, with effect from the 1st day of April, 2020,––
(a) for the words “three hundred fifty thousand”, the words “five hundred thousand” shall be
substituted;
(b) for the words “two thousand and five hundred”, the words “twelve thousand and five hundred”
shall be substituted.

This means that if your taxable income after all deduction is equal to Rs. 5L or less, than from the tax payable before cess, an amount of Rs. 12,500 will be discounted.

 Revised Tax Rebate Under Section 87A (FY 2019-2020) Explained

Examples of the revised Tax Rebate under Section 87A

Your total annual income is Rs. 7.25 L

All eligible deductions like 80C+ 80D + others = 2.25L (for e.g.)

Net taxable income = 5L

Old rule:  Net tax before cess: 12,500 and 13,000 with cess.

New rule: Net tax = 0. So saving = Rs. 13,000

Your total annual income is 8L

Net taxable income after all deductions is 5.5L

Old Rule: tax payable before cess: 22,500 and Rs. 23,400

New Rule: tax payable before cess: 22,500 and Rs. 23,400. No saving. The rebate will apply only if the net taxable income is equal to less than 5 lakh.

Here are more examples

zero percent tax slab illustration

Tax is zero if the net taxable income is less than 5 lakh

Section 87A rebate does not apply if the net income is even one rupee above five lakhs

 

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Updated: February 3, 2019 — 6:58 pm

10 Comments

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  1. Hi Mr. Pattu, in the Revised tax rebate section the statement should be “equal to Rs. 5L or Less” right?

  2. Does this mean that if my income is more than 5lac, my first 5 lac are not tax free?

    1. @Pallavi, I think so. Your first 2.5L will be tax free. Next 2.5L @ 5% (Rs. 12,500) and so on.

  3. Your have missed a raise of 10k in standard deduction which is applicable for all unlike the 5 lakh net taxable income.

    1. No I did not. I said net taxable income.

  4. Insane amount of Google ads on this page and you are over monetizing it which kills your user experience and will hurt you. I think you are crossing the permissible number of ad units on the page too so Google will likely ban your Google Adsense account.

    1. Please get yourself updated on developments on the adsense front and if that is only ad service from Google. When the no of words in the post is low, the ads stick out. But don’t worry, I will not get banned. This is 2019!!

  5. Pattu Sir, appreciate your great work.
    I feel that people, atleast salaried middle class employees, are unnecessarily stressing out too much about budget and stuff. If you actually check the delta increase or decrease in resulting tax it would be a very negligible portion of their gross income. Instead they should more focus on investing more in the coming financial year.

    Thanks,
    An avid follower of it blog

  6. Where can I check the list of 80C deductions, especially the medical expenses. What all qualifies there.

  7. It hurts me that people with net taxable income <= 5L have to pay no tax, but anyone who makes marginally more than 5L than has to pay 12500 + remaining.

    I can definitely see people wanting to fall under 5L by making more 'investments' or paying rents now.

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