The Budget announcement of a Rs 2,000 tax rebate to individuals in the Rs 2-5 lakh income bracket has raised a few queries.

The Budget announcement of a Rs 2,000 tax rebate to individuals in the Rs 2-5 lakh income bracket has raised a few queries. Many understand this as a rise in the exemption limit from Rs 2 lakh to Rs 2.2 lakh. Some think that it is like Rs 2,000 refund from the I-T department after you file the return and pay the taxes. Let’s weed out these doubts.

In case of a normal assessee, it makes really no difference whether you raise the exemption limit or give a tax

rebate, they say. If your total income is Rs 2,20,000 and you are liable to pay Rs 2,000 ( 10 per cent of Rs 20,000) as tax, you will get a full Rs 2,000 rebate. If your income is between Rs 2 lakh and Rs 2.2 lakh, then the rebate will come down proportionate to the total tax payable. In both cases, you will not have to pay any taxes for next year (FY 2013-14). If you earn more than Rs 2.2 lakh and up to Rs 5 lakh, you will spend Rs 2,000 less on taxes.

However, raising the limit and providing a rebate does make a difference to a senior citizen (between 60 and 80 years of age). Had Chidambaram done the former, senior citizens would not have gained, their exemption limit anyway being at a higher Rs 2.5 lakh. So, in a veiled way, senior citizens are the beneficiaries of the move to give a rebate, says Shuddhasattwa Ghosh, Director, Tax & Regulatory Services, PwC. This could come as a welcome relief to seniors grappling with rising prices on the one hand and predominantly no regular stream of income on the other.

Another tax practitioner we spoke to has an alternate view. By not raising the exemption limit, the Finance Minister is perhaps making sure those in the Rs 2-2.2 lakh income bracket don’t fall out of the return filing net, says Rajesh Srinivasan, Leader, Global Employer Services, Deloitte. A return filed will help serve as a reference point for any review in future.

How the rebate will reach into our pockets is something that is clear. It will not be like a refund reaching us months after filing the return. A new Section 87 A has been added to the Income Tax Act for this purpose. This means that there will be a provision to deduct the rebate from the tax payable when filing the I-T return itself.