Method of Calculation of Deduction Under Section 87A in Income Tax Act

Section 87A (Inserted by Finance Act 2013)

Relevant for Assessment Year 2014-15 (Previous Year 2013-14)  

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 on his total income with which he is chargeable for any assessment year,

(a)    of an amount equal to hundred per cent of such income-tax

(b)   or an amount of two thousand rupees,

whichever is less.

Analysis:-

(1)    Allowed to Resident Individual of India.

(2)    Benefit not allowed to:-

(a)    HUF

(b)   Non Resident Individuals

(3)    Total Income Doesn’t exceed  5,00,000/-.It means income after all deductions under chapter VIA  should be less than or equal to Rs 5,00,000/-.

(4)    Gross Total Income and Total Income are different Incomes.

(5)    Exact Income with 5,00,000 will be able to take benefit of above section as the law has been framed for the persons whose income doesn’t exceeds 5,00,000/-.

(6)     The purpose of making two limits are for those persons who are having income of Rs 2,00,000 to 2,20,000. If government had provided a flat deduction of Rs 2,000/- then the above persons would have got more deduction and they could have claimed for a refund which is not applicable.

(7) Manner of Income  and Tax Calculation:-

Particulars	Rs
Gross Total Income	340,000
Less: Deductions VI A	90,000
Total Income	250,000
Income Tax	5,000
Less: Relief Under 87A	2,000
	3,000
Add: Education Cess	60
Add: SHEC	30
Total Income Tax Payable	3,090

 (8) This is not a slab rate increase from 2,00,000 to 2,20,000/-. Slab rate is still 2,00,000 for Individual Citizens.