As we know that the amended section 87A of Income Tax Act 1961, applicable for the FY 2019-2020 provides COMPLETE tax rebate to those having income less than 5 lacs. It raises concerns for those having income around 5 lacs. The worst hit are those having income just above the prescribed limit, say, 5,01,000 because their Tax liability will amount to Rs. 13,208. Let’s understand this:

SECTION 87A An assessee, being an individual resident in India, whose total income does not exceed 45[five hundred thousand] rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of 46[twelve thousand and five hundred] rupees, whichever is less.

Tax rebate underlined inscription on documents

  Person A Person B
Total Income 6,70,000 6,70,000
Deductions 1,72,000 1,68,000
Net Income 4,98,000 5,02,000
Tax 12,400 12,900
Rebate u/s 87A 12,400 NIL
Tax payable NIL 12,900
[email protected]% NIL 516
Total Tax payable NIL 13,416

So, as above, there is Tax collection of 13,416 from person B against NIL tax collection from Person A while the difference of Net Income of the two is just 4,000.

Suggestion: Though the amended section is in line with the pre-amendment section 87A but the Tax deduction available now is 5 times (at max) more than the earlier available rebate. It appears to be unjust to collect Tax of around 13,500 more than the other person having income lower by just 4,000. There can be further amendment in the section to provide at least marginal relief. Like in above example the Tax collection should be restricted to Rs. 4,000.

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February 2021