PROVISIONS RELATED TO REBATE AND RELIEFS�UNDER�INCOME TAX ACT 1961

INCOME TAX ACT 1961

• Income tax act 1961 is an act to levy, administrate, collect & recover Income-tax in India. It came into force from 1st April 1962.
• Income Tax including surcharge (if any) & cess is charged for any person at the rate as prescribed by Central Act for that assessment year.  Income-tax Act has provided separate provisions with respect to levy of tax on income received in advance as well as the income with respect of which the amount has not yet been received. A person also has to keep track of his TDS deducted while calculating his final tax liability at the end of the year.

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Rebate under section 87A

• A rebate under section 87A is one of the income tax provisions that help taxpayers reduce their income tax liability. Taxpayers earning an income below a certain limit have the benefit of paying marginally lower taxes.

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• Rebate of tax u/s 87A has been provided to such individuals who are not earning annual income exceeding 350000rs .

Eligibility to claim rebate u/s 87A FY 2018-19 (AY 2019-20)

You can claim the benefit of rebate under section 87A for FY 2018-19 only if the following conditions are satisfied:

• You are a resident individual
• Your total income after reducing the deductions under chapter VI-A (Section 80C, 80D and so on) does not exceed Rs 3.5 lakh in an FY
• The tax rebate is limited to Rs2500 This means, if your total tax payable is less than Rs 2500 then you will not have to pay any tax.

the rebate will be applied to the total tax before adding the health and education cess of 4%.

Examples of section 87A rebates for resident individuals including senior citizens:

The Rebate u/s 86 on shares from A.O.P

The rebate is allowed only if shares from AOP is included in the total income of a person.

Procedure :

1. Compute total income of AOP.
2. For computing tax on total income rates to be applied are to be determined in following manner :
1. For determining rates of tax we are to find out the individual income of each member :
1. If such individual income of all partner does not exceed max. Exempted limit 250000/300000/500000 each, the AOP shall pay tax at the rates of applicable to an individual.
2. Shares from such AOP is fully added in the individual income and fully taxable as a part of individual members total income.
3. No rebate of tax if total income of such AOP does not exceed Rs 250000.

Example . Compute the tax liability in the following cases separately:

• Case A. Total Income of AOP Rs 3,30,000

Total income of member A is Rs 2,43,000 and of B is Rs 2,44,000

Solution : (i) Rates of tax shall be same as are applicable to an individual as individual income of both the members does not exceed Rs 2,50,000 each

tax on Rs 2,50,000 NIL

On Balance Rs 80,000 @ 2% of tax 4,000

AOP tax 4,000

Add : Education cess @ 2% of tax Rs80

Secondary and higher education cess @ 2% Rs80 160

Tax payable by AOP 4,160

Mr.A Mr.B

• (II) Individual income of partners 2,43,000 2,44,000

Add : Share from AOP 1,65,000 1,65,000

Total Income 4,08,000 4,09,000

Tax on Rs 2,50,000 NIL NIL

On balance Rs 1,58,000 and Rs 1,59,000 @5% 7,900 7,950

7,900 7,950

Less : Rebate u/s 87A NIL NIL

7,900 7,950

Add : Education cess @4% (2+2) of tax 316 318

Total tax 8,216 8,268

Mr.A Mr.B

• (iii) Less : Rebate of tax average rate of tax

(A) Average rate [8,216 *100/4,08,000] = 2.01%

on share from AOP Rs 1,65,000 * 2.01% 3,323

(B)Average rate[8,268*100/4,09,000]= 2.02%

on share from AOP Rs 1,65,000 *2.02% 3,335

Tax 4,893 4,933

Tax payable rounded off to 4,900 4,940

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Case B. if individual income of any member exceed Rs 2,50,000 (maximum exempted limit)� Total income of AOP Rs 2,60,000�Total income of member A (age 48 years) is Rs 3,01,000 and of B (age 50 years ) is Rs 2,49,00�

If Total income of any one or more partner/member of AOP exceed Rs 2,50,000 ,the AOP shall pay tax at MMR i.e. 30% on whole of its total income. Share from such AOP shall be fully exempted for member. Hence no rebate u/s86.

As in this case individual total income of partner is A Rs 3,01,000 and B Rs 2,49,000 and A’s individual income exceeds Rs 2,50,000 as such AOP shall pay tax at MMR.

30% on whole of its total income :30% of Rs 2,60,000 78,000

Add: Education cess @2% of tax 1,560

Secondary and Higher Education cess @2% 1,560 3120

Total tax of AOP 81,120

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Mr.A Mr.B

Individual total income of partner 3,01,000 2,49,000

Share from AOP exempted NIL NIL

Total Income 3,01,000 2,49,000

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Tax up to Rs 2,50,000 NIL NIL

On balance Rs 51,000 @5% 2,550 NIL

Tax 2,550 NIL

Less: Tax Rebate u/s 87A 2,550

50

Add: Education cess @4% of tax (2+2) 2 NIL

Tax 52 NIL

Tax payable rounded off to 50

Relief under section 89 | Taxability in case of Arrear of Salary

• Usually salary income is received as it becomes due but it's quite often that an employee may receive a component of his salary in the form of arrear or advance salary in the course of employment. In that case relief of tax u/s 89 is allowed under Income Tax Act, 1961 as then the assessee might have to pay higher taxes because the arrear /advance salary is taxed in the year of receipt of the same and not in the year in which it is actually due. The difference in the tax liability in due year and in the receipt year might be due to changes in the slab rates.

When is Relief u/s 89 available?

Relief under section 89 is available when

• Salary received in arrears or in advance;
• Salary received for more than 12 months in one financial year;
• Family Pension being received in arrears;
• Gratuity
• Compensation on termination of employment; and
• Commuted Pension

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What are the steps to claim relief under section 89?

• Step 1: Firstly, calculate the tax due in the current year by including the arrears in your total income.
• Step 2: Now calculate the tax due in the current year by excluding the arrears from your total income.
• Step 3: Compute the difference of the two figures of Step 1 & 2 and let’s call that difference as ‘X’.
• Step 4: Now Calculate your tax due in the year for which the arrears have been received by including the arrears in your total income.
• Step 5: Then Calculate your tax due in the year for which the arrears have been received by excluding the arrears from your total income.
• Step 6 : After that compute the difference of the two figures of Step 4 & 5 and let’s call the difference as ‘Y’.
• Step 7: Lastly subtract Y (Step 6) from X (Step 3)and you will get the relief amount.

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EXAMPLE :

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1. Total Income of Suraj was Rs. 15,00,000 p.a. in FY 2019-20 and also received an arrear of Rs. 3,00,000 p.a. For FY 2018-19. His total income in FY 2018-19 was Rs. 6,00,000 p.a.

:

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Double Taxation Relief u/s90

• Double taxation refers to the phenomenon of taxing the same income twice. Double taxation of the same income occurs when the same income related to an individual is related to an individual is treated as being accrued, arising or received in more than one country.

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• The article studies double taxation relief according to section 90 of the Income Tax Act.

Relief against Double Taxation [Section 90]

• Section 90 is associated with relief measures for assesses involved in paying taxes twice i.e. both in India as well as in Foreign Countries or territory outside India. Section 90 also contains provisions which will certainly enables the central govt to enter into an agreement with the govt of any country outside India or a definite territory outside India.
• For the granting of relief in respect of income on which have been paid both income tax.
• For the avoidance of double taxation of income
• For recovery of income tax under both India and outside India Income tax.
• For exchanging the information for the preventions of evasions or avoidance of income tax chargeable under both India and outside India Income tax .

Example. - In case of Resident individual�Income earned in India = Rs500000�Income earned from foreign = 200000 (tax paid there = Rs.50,000)�

1. Total income is 500000 + 200000 Rs 700000
2. Tax calculated on 7,00,000/- Rs 118450
3. average rate of tax is (118450 / 700000) = 16.92%
4. Calculate average tax on foreign income i.e. 200000 x 16.92% = Rs 33840
5. Tax paid in foreign country Rs. 50,000.
6. Hence relief u/s 90 is lower of 33840 and 50000, i.e. 33.840�

Therefore tax statement is

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Taxon total income 118450

Less: relief u/s 90 33840

Tax payable 84610��

In case there is No double taxation agreement, then Tax Relief can be claimed u/s 91.

1. If any person who is resident in India in any previous year proves that, in respect of his income which accrued/arose during that previous year outside India . he has paid in any country with which there is no agreement u/s - 90 for the relief /avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.

2. If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him—

1. of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also; or
2.  of a sum calculated on that income at the Indian rate of tax;

whichever is less.

3. If any non-resident person is assessed on his share in the income of a registered firm assessed as resident in India in any previous year and such share includes any income accruing or arising outside India during that previous year .in a country with which there is no agreement under section 90 for the relief or avoidance of double taxation and he proves that he has paid income-tax by deduction or otherwise under the law in force in that country in respect of the income so included he shall be entitled to a deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income so included at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.

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