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

Last Updated on

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

 

Watch the video version

 

Do share if you found this useful

About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.

Do check out my books


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

10 Comments

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

  2. 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!!

  3. 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

  4. 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.

Leave a Reply

Your email address will not be published. Required fields are marked *