Income Tax Rebate

What is an Income Tax Rebate?

The income tax rebate meaning is a reimbursement provided by the Government of India if your taxable income falls below a certain threshold
 

Simply put, if your taxable income is lower than the limit declared by the Government, you'll receive a lump sum rebate, irrespective of your income.

To claim this refund, you must file an Income Tax Return within a stipulated timeframe. The income tax rebate slab differs depending on the tax regime you have chosen. The threshold for taxable income eligible for tax rebates differs for the old and new tax regimes.
 

In India, the most popular Section under the Income Tax Act that offers tax rebates is Section 87A.

Eligibility for Claiming Tax Rebate in India  

In India, eligibility to claim a tax rebate depends on various factors. Here are some key considerations:
 

• Residential Status: You must be a resident of India as per the Income Tax Act. Non-resident individuals or foreign companies may have different tax rules applying to them.
  
  
• Income Level: Different rebates are available based on income levels. The rebate under Section 87A is available to individuals with income below a certain threshold.
  
  
• Choice of Regime: The amount received as a tax rebate differs for the old and the new tax regimes. So, your choice will determine the actual rebate you receive.
  
  
• Income Source: The source of your income, whether it's from salary, business, or other means, can impact your eligibility for specific rebates.
  
  
• Filing of Returns: Regular filing of income tax returns is crucial to avail rebates. Failing to do so might lead to the forfeiture of potential benefits.

Income Tax Rebate Under 87A for Old and New Tax Regimes
 

Section 87A Rebate for Old Tax Regime:

The refund amount under Section 87A for FY 2021-22 and FY 2022-23 (Assessment Year 2022-23 and 2023-24) has remained consistent in the previous and current income tax structures.

A resident individual with a taxable income of up to ₹5,00,000 is entitled to a tax rebate of ₹12,500 or the actual tax liability (whichever is lower).
 

Section 87A Rebate for New Tax Regime

The new income tax regime has adjusted the rebate under Section 87A for FY 2023-24 (Assessment Year 2024-25).

A resident individual with taxable income up to ₹7,00,000 will now receive a tax rebate of ₹25,000.

Important Considerations for Claiming Rebate under Section 87A

Eligibility Criteria:

• Only resident individuals are eligible for the rebate under Section 87A.
• Senior citizens aged between 60 and 80 years can avail of this rebate.
   

Ineligibility for Super Senior Citizens:

• Super senior citizens, aged 80 years or above, are not eligible for rebates under Section 87A.
   

Rebate Calculation:

• The rebate is applicable to the total tax liability before adding a health and education cess of 4%.
• The amount of rebate cannot exceed the limit specified under Section 87A or the total income tax payable (before cess).
   

Tax Regime Compatibility:

• Section 87A rebate is available under both the old and new tax regimes.

Calculating Your Income Tax Rebate: A Step-by-Step Guide

As you file your income tax return, you might be curious about your eligibility for an Income Tax rebate. This hinges on the bracket into which your earnings fall.

Begin by computing your taxable income, which involves aggregating all sources of income and then reducing all potential deductions.
 

If your total income falls below the rebate threshold (₹5,00,000 for the old tax regime and ₹7,00,000 for the new tax regime), you
 

For example, let's consider Mr Rao with an annual income of ₹6,50,000 who has deductions under various sections of the Income Tax Act and has opted for the old tax regime.

What are the Types of Income/Gains Where Section 87A Rebate is Applicable?

You can claim a Section 87A rebate against the following tax liabilities:
 

• Normal income, which is taxed at the applicable slab rate.
• Long-term capital gains under Section 112 of the Income Tax Act (excluding gains from listed equity shares and equity-oriented mutual funds).
• Short-term capital gains from listed equity shares and equity-oriented mutual funds under Section 111A (taxed at a flat rate of 15%).
   

Please note that the rebate under Section 87A cannot be utilised to offset tax liability on long-term capital gains from equity shares and equity-oriented mutual funds under Section 112A.

Tax Deductions That Help You Claim Tax Rebate Under Section 87A

As we saw above, Mr Rao utilised tax deductions under Section 80C and 80D to bring down his taxable income under Section 87A rebate threshold, thereby enjoying a rebate of ₹12,500 and ensuring zero tax liability.
 

The following table lists some of the popular deductions available under various sections of the Indian Income Tax Act that help you reduce your taxable income. Note that most of these deductions are only available if you opt for the old tax regime when filing your tax returns:
 

Conclusion

Navigating the intricate web of tax rebates in India, especially those under Section 80C, 87A, etc., can be a game-changer for individuals seeking financial stability and growth. These rebates not only offer relief but also encourage prudent financial choices.
 

Whether it's reducing your tax liability through investments, home loans, or research contributions, understanding the eligibility criteria is vital. By strategically harnessing these opportunities, taxpayers can optimise their earnings and secure their financial future.
 

So, make informed decisions, explore your options, and ensure you capitalise on every available rebate to build a robust and tax-efficient financial portfolio.