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

For the Financial year of 2019-20, Tax rebate has been increased from Rs. 2,500 to Rs. 12,500. But there is a condition for this Tax rebate to be applicable. 

Your Taxable income must be less than Rs. 5 lacs in a Financial Year. 
Previously it was Rs. 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 Rs. 5 lacs and enjoy the benefits of tax rebate of up to Rs. 12,500. 

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Let's now take an example of Taxable Income of Rs. 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 Rs. 2 lac 50,000 to Rs. 4 lac 50,000. 
So your income tax will be calculated as: 
5% on Rs. 4 lac 50,000 minus Rs. 2 lac 50,000, which makes it equal to 5% on Rs. 2 lacs, which is equal to Rs. 10,000. 

Now since the taxable income in this example is less than Rs. 5 lacs, tax rebate under section 87 A will be applicable to reduce your income tax. 
So tax rebate of maximum Rs. 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 Rs. 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 Rs. 5 lacs. 

Let us now see another example where Tax rebate will not be applicable. 
Let's say your Taxable income is Rs. 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 Rs. 2 lacs 50,000 to Rs. 5 lacs, which makes it equal to Rs. 12,500
- 20% tax on income between Rs. 5 lacs to Rs. 6 lacs, which makes it equal to Rs. 20,000. 
This makes your income tax to Rs. 32,500, and in this case, no Tax rebate will be applicable since your Taxable income is above Rs. 5 lacs. 
Additionally, cess of 4% will be applicable on this Income Tax of Rs. 32,500, which will make your total income Tax to Rs. 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 Rs. 6 lacs. 
If you try to invest Rs. 1 lac in Tax deduction schemes such as PPF or Life Insurance, and get the Taxable income to below Rs. 5 lacs, you would save Income Tax of Rs. 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 Rs. 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.
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