#4 - TAX REBATE u/s 87A | New TAX REBATE EXAMPLES | Income Tax Calculation Examples | FinCalC TV

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Hello guys, today in this video we are going to see what is Tax Rebate and how it will be applicable in Financial Year 2019-20 in order to reduce your Income Tax.
Tax Rebate under section 87 A is provided by government of India to reduce your Income Tax. It is set in such a way that, people falling under a particular Tax bracket gets the advantage of Tax rebate under section 87 A.

For the Financial year of 2019-20, Tax rebate has been increased from rupees 2,500 to rupees 12,500. But there is a condition for this Tax rebate to be applicable.
Your Taxable income must be less than rupees 5 lacs in a Financial Year.
Previously it was rupees 3 lacs 50,000, for Tax rebate to be applicable.
Taxable Income is your gross Income minus any investments made by you. So you can make appropriate investments and get your taxable income to below rupees 5 lacs and enjoy the benefits of tax rebate of up to rupees 12,500.

Let's now take an example of Taxable Income of rupees 4 lac 50,000, for the people of age below 60 years.
So based on the Tax slab rate of people below 60 years, as seen in the lesson 1 of this video series:
- 5% tax will be applicable on income between rupees 2 lac 50,000 to rupees 4 lac 50,000.
So your income tax will be calculated as:
5% on rupees 4 lac 50,000 minus rupees 2 lac 50,000, which makes it equal to 5% on rupees 2 lacs, which is equal to rupees 10,000.

Now since the taxable income in this example is less than rupees 5 lacs, tax rebate under section 87 A will be applicable to reduce your income tax.
So tax rebate of maximum rupees 12,500 will be applied, which makes your effective Income Tax equal to zero.
In this way you need not have to pay any Income Tax if your taxable income is below rupees 5 lacs in the Financial year of 2019-20.

Tax rebate under section 87 A helps you to cancel any Income Tax for Taxable Income of below rupees 5 lacs.

Let us now see another example where Tax rebate will not be applicable.
Let's say your Taxable income is rupees 6 lacs. In this case, based on the Slab rates for people of age below 60 years, as explained in lesson 1 of this video series, your income tax will be calculated as:
- 5% tax on income between rupees 2 lacs 50,000 to rupees 5 lacs, which makes it equal to rupees 12,500
- 20% tax on income between rupees 5 lacs to rupees 6 lacs, which makes it equal to rupees 20,000.
This makes your income tax to rupees 32,500, and in this case, no Tax rebate will be applicable since your Taxable income is above rupees 5 lacs.
Additionally, cess of 4% will be applicable on this Income Tax of rupees 32,500, which will make your total income Tax to rupees 33,800.

We will see more examples related to cess in upcoming videos. So this is the total Income Tax that you would pay for Taxable Income of rupees 6 lacs.
If you try to invest rupees 1 lac in Tax deduction schemes such as PPF or Life Insurance, and get the Taxable income to below rupees 5 lacs, you would save Income Tax of rupees 33,800 which you would pay without making any investments in Tax deduction schemes.

We will see various Tax Deduction schemes that will help us reduce our Income Tax in upcoming videos. So, try to get your Taxable Income to below rupees 5 lacs to avoid any Income Tax to be paid. In the upcoming videos we will see examples related to cess and the various Tax deduction schemes that we can use to reduce our Income Tax.

Do let us know about your queries in the comments section below.

Like and Share this video. Subscribe to our Channel for more information and examples related to Income Tax and other related topics. Stay tuned.

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