Tax Rebate for Small Taxpayers

With this rebate claim, small taxpayers end up paying ZERO income tax, though they have to file their I-T Returns

From the Assessment Year 2020-21 (the financial year 2019-20), the small individual taxpayers having annual income less than ₹500,000/- are NOT needed to pay any tax though theoretically, you have to pay tax once your income crosses the threshold limit of ₹250,000/-. However, you need not file your income if it’s less than ₹250,000/- but in case it’s less than ₹500,000/- you need to file your I-T Return and claim that you need not pay tax since you are eligible for rebate u/s87A of the Income-tax Act.

What is the Income-tax rebate?
This rebate does not mean that your income is exempt, or your income is deductible for tax purposes. It simply means ‘discount or concession’ in tax. This implies that to claim this rebate you first have to compute your tax on your total taxable income which should be less than ₹500,000/-. Such tax should be computed excluding the amount of any cess therein. Rebate is in respect of tax and not cess. From the assessment year 2020-21 (the financial year 2019-20), the maximum amount of the rebate is ₹12,500/-.

What are the conditions for the rebate claim?
The rebate is available if you satisfy the following conditions:

  • The rebate is available to only individual taxpayers
  • The rebate is available only to residents in India
  • The total income after claiming deductions under chapter VIA (e.g. 80C, 80D, 80DD, 80G, etc.) is less than ₹500,000/-
  • The maximum limit for the amount of rebate is ₹12,500/- (for A Y 2020-21 and onwards)
  • The rebate is applied to the tax amount and not to the amount of cess on tax


Examples:

Name Gross Annual Income Deductions Total Income Tax on total income Rebate Tax Payable
Shri Ravi 3,80,000/- 1,40,000/- 2,40,000/- 0 0 0
Smt. Mangal 5,20,000/- 1,50,000/- 3,70,000/- 6,000 6,000 0
Shri Satish 6,60,000/- 1,70,000/- 4,90,000/- 12,000 12,000 0
Shri Rajeev 8,20,000/- 1,80,000/- 6,40,000/- 40,500 0 40,500