Details on the Rs. 2,000 Tax Credit

A tax credit was announced in the latest budget where anyone making less than Rs. 5 lakhs would get a tax credit of Rs. 2,000. It wasn’t very clear to me what this means as a credit can imply that the government credits Rs. 2,000 in the bank accounts of all the assesses who are eligible for the credit, but that doesn’t make much sense because you can just collect Rs. 2,000 less to begin with and not go through all that hassle.

Rutvik posted the following comment about this a few days:

Rutvik March 5, 2013 at 10:00 pm [edit]

Hi Manshu,

There is this point in the personal tax clause which states that there is a “tax credit” for people having income upto 5 lakhs. Could you elaborate on what this means?


What this means is that of your income is less than Rs. 5 lakhs, you will have to pay Rs. 2,000 less than your tax liability, but the question is how is this less tax charged, and what’s the point of doing it this way instead of the direct rebate.

I came across an article in Business Line about the Rs. 2,000 tax credit today which explained this and I thought that was interesting enough to share here.

First, about how this will be implemented. According to the article, Section 87A has been added in the Income Tax Act 1961, and you will not get this credit as a refund and won’t have to wait for it but you will pay reduced tax at the time of filing itself which is a good thing.

The article goes on to list reasons as to why this has been implemented in a certain manner and I felt those are worth a read as well, specially for senior citizens.

Read the full article here: Dissecting the Rs 2,000 tax rebate

2 thoughts on “Details on the Rs. 2,000 Tax Credit”

  1. Very thoughtful of the writer to write a post on this seemingly unimportant topic. Most of the people are unclear as to how this tax credit can be claimed. Personally, I feel the FM could have just raised the exemption limit, instead of coming out with this. To get the full benefit of this, a person should both have a tax payable of Rs 2000/- and above, and at the same time, a salary below Rs 5,00,000/- per annum.

    1. I think the two reasons given in the article of helping senior citizens and making sure some people just don’t fall off the tax net for review purposes make sense.

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