Finance Minister Arun Jaitley presented India’s National Budget today, focusing over stagnating growth, the state of government finances and stuttering pace of reforms. Presenting his third budget, Jaitley described Asia’s third-largest economy as a bright spot in a gloomy landscape and reiterated a forecast that it would grow by 7.6% in the fiscal year that is drawing to a close.

FM focused on small taxpayers and announced several changes in the different areas of Income Tax Act, 1961. Budget 2016 is to provide relief to small taxpayers through rebates.

 

In the budget 2016, the finance minister has increased the limit of the rebate to be availed by the small taxpayers under section 87A of Income Tax Act, 1961 by Rs. 3000 per annum. Additional relief for small taxpayers of Rs. 3000 u/s 87A – Budget 16

Now, under Section 87A, whose total income does not exceed 5 Lakh rupees in a Financial Year are allowed a rebate of Rs. 5000 from the total tax liability assessed on their total taxable income. Mr Jaitley said the move will help more than 2 crore taxpayers.

 

This hike in relief effectively raised the basic exemption for the taxpayers up to Rs 3 lakh, as rebate is allowed on the total tax payable calculated as per the Income Tax slab Rates. So, falling under 10% bracket (upto Rs.250000 – Exempted; Rs.250000 to Rs.500000 – 10%), Rs.5000 is 10% of Rs.50000. Therefore, effectively it increases the basic exemption limit from Rs.250000 to Rs.300000 after allowing the rebate u/s 87A of Rs.5000 over and above the basic exemption.

 

This aspect of Budget 2016 focused on the sentiments of small taxpayers and provided them an opportunity to save more taxes on their Income. Section 87A also has some below mentioned key points to be read along with the said proposal made by FM Arun Jaitley :

 

• Rebate is available only to Resident individuals and not available to Non Residents.
• Rebate available to both Male and Female assesses
• If the total tax payable by is less than Rs. 5000/-, rebate is restricted to “total tax payable”.
• Rebate is allowed before levy of Education Cess, SHE Cess & Surcharge.
• Rebate benefit is available to all category of Individuals but not to super senior citizen, since he is already fully exempted up to Rs. 5 lakh.

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