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Income Tax Rebate

In India, an income tax rebate refers to a deduction or reduction in an individual or entity's total income tax liability. It is a benefit provided by the government to provide tax relief to specific categories of taxpayers with total annual income under a pre-specified limit.

Income tax* rebates are a powerful tool for individuals and businesses to optimise their financial landscape. In this blog, we will dive deep into the intricacies of this often-misunderstood subject, shedding light on the various types of rebates, eligibility criteria, and the potential impact on your bottom line.

Join us on a journey to discover what is rebate in income tax and some practical strategies to maximise your savings and make informed financial decisions. Your path to fiscal empowerment starts here.

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.

Total Income

₹6,50,000

Deductions Under Section 80C

₹1,30,000

Deductions Under Section 80D

₹20,000

Taxable Income

Total Income - Sum of all deductions

6,50,000 - (1,30,000 + 20,000)

= 6,50,000 - 1,50,000

= ₹5,00,000

Applicable Income Tax at 5%

 

(Old Regime 2.5 lakhs to 5 lakhs tax slab is taxed at 5%)

₹5,00,000 x 5% = ₹12,500

Applicable Tax Rebate Under Section 87A

 

(Since the taxable income is 5,00,000 and Mr Rao has opted for old tax regime, Section 87A rebate can be applied)

₹12,500

Thus, Total Tax Liability

₹12,500 - ₹12,500 = ₹0

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:
 

Section

Description

Maximum Deduction (₹)

Section 80C

Deduction for a Range of Investments and Expenses

(ELSS, PPF, EPF, life insurance premiums, home loan principal, NPS, tax-saver FDs, etc.)

₹1,50,000

Section 80D

Health Insurance Premium

Up to ₹25,000 (below 60 years of age)

Up to ₹50,000 (Senior Citizens)

Section 80G

Donations to Charitable Organisations

100%, 50%, 25% or 10% of the donated amount, depending upon the classification of the organisation

Section 80GG

Rent Paid for Accommodation in Case of No HRA

Lower of 25% of Total Income, Actual Rent Paid minus 10% of Total Income, or 5,000 per month

Section 24(b)

Home Loan Interest

Up to ₹2,00,000 (Self-occupied Property)

No limit if the property is put up on rent

Section 10(13A)

House Rent Allowance (HRA)

Actual HRA Received, Rent Paid, and 50% of Basic Salary (or 40% for non-metro cities)

Section 80E

Interest on Education Loan

Entire Interest Paid

Section 80EE

Home Loan Interest (Additional Deduction for First-time Home Buyers)

Up to ₹50,000

Section 80TTA

Interest on Savings Account

Up to ₹10,000

Section 10(14)

Special Allowance for Travel

Actual Allowance Received

Section 80CCD (1B)

National Pension System (NPS) Contribution

Up to ₹50,000 (over and above Up to ₹1,50,000 of Section 80C)

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.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

How can I ensure I'm eligible for the deductions mentioned in this blog?

To ensure eligibility for deductions, meeting the specific criteria outlined in each section is crucial.
 

For example, for deductions under Section 80E (Interest on Education Loan), ensure that the loan was sanctioned within the stipulated period and meets the prescribed loan amount limit.

Can I claim deductions under multiple sections simultaneously?

Yes, you can claim deductions under multiple sections of the Income Tax Act, including Section 80C. It's essential to carefully review each section's eligibility criteria and conditions to maximise your tax benefits.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  •  Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.