Income Tax Rebate In India — A Detailed Guide

 

What is income tax rebate? A tax rebate is a refund you are eligible for if the tax you have paid exceeds your tax liability. You can avail of a refund every financial year. You can claim the income tax rebate only if you file your income tax returns within a specified period every financial year. Learn more about the tax rebate meaning and the investments that help reduce your tax liability in this article.

What is Income Tax Rebate?

An income tax rebate is a facility provided by the Government of India to tax payers to reduce their overall tax liability. This benefit was introduced to encourage investments and savings. Rebate in income tax plays a crucial role, especially for those in the middle-income group. Investments to avail of the rebate help create an emergency corpus and make taxpayers financially secure. 

Guidelines as per the Income Tax Act 1961 have to be followed concerning the tax rebates. The tax rebate a taxpayer can avail depends on the specific investments.

How to Get a Tax Rebate in Income Tax?

Availing of a refund on paying tax over your tax liability is the income tax rebate meaning. By investing in schemes eligible for tax deductions and incurring expenditures that are eligible for exemptions and deductions as per the Income Tax Act 1961, you can reduce your tax liability and claim a tax rebate. 

The list of such investments and expenditures eligible for tax benefits is given below:

1. Savings Bank Interest

The deposits in savings accounts in banks earn interest. Individuals and HUFs can claim a deduction for the interest earned in a financial year under Section 80TTA  if is within Rs. 10000/-.

2. Home Loan Interest

The interest paid towards a home loan availed to purchase a residential property is eligible for an income tax rebate. The maximum deduction permitted will be Rs. 50000/- in a financial year under Section 80EE. You will be eligible for the benefit only if the asset created out of the loan is the only property you own at the time of sanction of the loan.

You can also avail of a tax benefit under Section 24B for the home loan interest paid up to a maximum of Rs. 2.00 lakhs if the property is self-occupied. 

3. Education Loan Interest

You can claim a tax rebate on the interest paid on an education loan availed for pursuing higher studies under Section 80E. The entire interest will be eligible for tax benefits for eight years.

4. Health Insurance Premiums 

If you have purchased a health insurance premium, you can claim a tax rebate for the premium paid under Section 80D. These premiums could be for the health insurance of your spouse, children, or parents. 

5. Charities and Donations

Charities and donations made to specific charitable institutions will get a rebate in income tax under Section 80G.

Types of Income Tax Rebates in India

The types of income tax rebates in India are manifold. What is income tax rebate can be well explained with the following investments and expenditures. They are eligible for rebates that help you reduce your tax amount to a great level.  

1. Section 80C

Most taxpayers prefer Section 80C. Section 80C reduces the taxable income by 1.50 lakhs. An income tax rebate under the Section can be claimed by investing in the following instruments/schemes:

• Public Provident Fund (PPF)

• National Pension Scheme (NPS)

• Senior Citizen Saving Scheme (SCSS)

• Tax Saving Fixed Deposits with 5-year tenure.

• Employee Provident Fund (EPF) and General Provident Fund(GPF)

• Life Insurance Premiums

2. Section 80D

The rebate in income tax under Section 80D is available for premiums paid towards health insurance. Premiums paid for health insurance for spouses, children, and parents are also eligible for income tax rebate under this Section. Your medical expenses are taken care of while your taxable income is reduced and it has a great impact on the tax amount payable.

3. Section 24B

A rebate in income tax can be availed on the interest paid on home loan repayments under Section 24B. The maximum rebate permitted is Rs. 2.00 lakhs in a financial year. This rebate applies only to home loans availed for residential property.

4. Section 80E

The tax rebate permitted for interest paid on education loans availed for pursuing higher studies is the tax rebate meaning for availing benefit under Section 80E. The deduction for the entire interest amount paid can be claimed for eight years.

5. Section 80G

Individuals can claim an income tax rebate for the donations made to specific charitable institutions. The extent of the tax rebate depends on the organisation for which the donation is made and also has certain limits.

Some of the instances where you can claim a 100% tax rebate are donations made to:

• National Defence Fund

• Prime Minister’s Relief Fund

• National Children’s Fund

• Zila Saksharata Samitis

• The Army Welfare Fund

• Indian Naval Benevolent Fund

• Air Force Central Welfare Fund

You can claim a 50% tax rebate for donations made to:

• Rajiv Gandhi Foundation

• Indira Gandhi Memorial Fund

• Jawaharlal Nehru Memorial Fund

• Prime Minister’s Drought Relief Fund

These are just a few examples of the limit stipulated on the income tax rebate in India for charities and donations.

6. Section 80EE

The tax rebate meaning under Section 80EE is the rebate provided for the interest paid on a home loan availed for a residential property. The condition to avail of this benefit is that the house purchased out of the loan should be the only property you own. The maximum rebate permitted is up to Rs. 50000/- in a financial year.

As per the Budget 2023, when the taxpayer is calculating the capital gains tax (the difference between the purchase price and the selling price), the purchase price should not include home loan interest for which he/she has claimed exemption during their ownership period.

7. Section 80GGA

Donations made by all assesses except those who have income from businesses or professions to organisations involved in scientific research, rural development, nature conservation, etc., are eligible for tax deduction under Section 80GGA. 

A 100% income tax rebate is permitted for donations made by cash, cheque, or draft. However, donations above Rs. 2000/- made in cash are not eligible for the rebate. 

8. Section 80TTA

Section 80TTA provides tax deductions up to Rs. 10000/- for the income earned on savings deposits at banks, post offices, and cooperative societies. 

9. Section 54

Under Section 54 if the owner of a property substitutes the sale proceeds of the property with another residential property, he/she will be exempted from the capital gains tax. This benefit can be exercised if a residential property is purchased within 1 to 2 years from the date of sale and three years if a residential property is constructed.

10. Section 54EC

Section 54EC provides for the exemption of capital gains tax if the long-term capital gains are invested in specified instruments with a pre-defined tenure. Only the sale proceeds of long-term capital assets are eligible for the benefit. The investment should be made in part or full within six months from the date of sale. Only long-term investments in specified assets will be eligible for the exemption.

11. Section 10(13A)

House Rent Allowance (HRA) is a component of the salary, and you claim an exemption for HRA under Section 10(13A) if you are staying in a rented house and claiming HRA from your employer. HRA will be a percentage of the salary, depending on the city of residence.

How To Claim Income Tax Rebate?

After getting an idea about what is income tax rebate and the types of income tax rebates you should know how to incorporate these rebates appropriately to minimise the tax liability to the maximum. 

Here are the steps that you should follow to claim the tax rebate:

1. Check Eligibility

Tax rebates are specific to each category i.e., individuals, senior citizens, differently-abled people, and taxpayers within a certain income tax slab. Check your eligibility for the rebate as per the Income Tax Department guidelines.

2. Factor The Taxable Income

For computing the taxable income you should consider your income from all sources, including salary, capital gains, profits from business, etc. The net taxable income will be after subtracting the eligible deductions and exemptions from the total income.

3. Identify The Appropriate Rebate Section

The rebate section is associated with the type of rebate you are eligible for. The common rebate sections are Sections 87A and 80C. 

4. Collect Appropriate Documents

Documents like certificates, investment proofs, receipts, etc, relevant to the nature of the rebate you are claiming will be required. Keep them handy. 

5. File The Income Tax Returns

It is necessary to file income tax returns to claim the rebate and get a refund. Use appropriate forms like ITR1 or ITR2, depending on your income source. Income and deductions have to be reported accurately under appropriate sections. Verify the contents for accurate reporting and then file the income tax return. 

You can either choose the income tax e-filing option or physically submit the ITR form along with supporting documents to the designated Income Tax Office.

Eligibility Criteria to Claim Income Tax Rebate in India

It is mandatory to file income tax returnsat the end of the fiscal year to claim a tax rebate except in a few cases like:

• When your gross income is less than Rs. 5.00 lakhs filing an ITR will be useful to get a TDS refund if any.

• If your income is more than Rs. 5.00 lakhs, then investments and expenses that fall under various Sections like 80C, 80D, 80CCD, etc can reduce your tax liability.

• Individuals with a gross income of up to Rs.5.00 lakhs are also eligible for an income tax rebate.

How To Calculate Income Tax Rebate?

The steps to calculate income tax rebate before you file the income tax return are:

• Arrive at the taxable income by subtracting the deductions and exemptions from the gross income.

• Include incomes that are eligible for tax exemption, like interest earned on tax-saving instruments.

• Consider all the expenses and investments eligible for tax exemption.

• Calculate the tax payable as per the applicable income tax slab rates.

• Claim tax rebates under the relevant Sections of the Income Tax Act for expenses and investments.

• Arrive at the final tax liability by deducting the tax rebates from the tax payable. 

An example for calculating income tax rebates is given below:

Details	Old Tax Regime	New Tax Regime
Annual income after standard deductions	Rs. 7.00 lakhs	Rs. 7.00 lakhs
Section 80C Rebate	Rs. 1.50 lakhs	Nil
Gross taxable income	Rs. 5.50 lakhs	Rs.7.00 lakhs
Tax slab	20%	10%
Tax on GTI	Rs. 22500 Rs. 12500+ 20% above Rs. 6.00 lakhs	Rs. 25000 Rs. 15000+10% above Rs. 5.00 lakhs
Section 87A Rebate	Nil	Rs. 25000
4% cess on tax payable	Rs. 900	Nil
Total Tax	Rs. 23400	Nil
Net Income Tax payment	Rs. 28000	Rs. 5000
Income Tax Refund	Rs. 4600	Rs. 5000

Unlike indirect taxes where tax is levied on the consumption of goods and services, direct tax is collected on the total income from various sources from various sources. You can claim deductions and exemptions for various expenses incurred and investments made to reduce the tax burden. 

It is necessary to file income returns where you disclose accurately the gross income and various deductions and exemptions you are eligible for by submitting valid proof. If the tax paid is over and above the tax liability, the assessee will get an income tax refund from the Income Tax Department. 

Points To Remember

While filing income tax returns to claim an income tax refund, the following points have to be kept in mind:

• Income tax rebates are different from exemptions. Exemptions are income items that are entirely exempted from tax like income from diplomatic missions, agricultural income, etc.

• Under the old tax regime, you can claim tax benefits for investments and expenses under various sections like 80C, 80EE, 80E, 24(b), 80EEA etc.

• Under the new tax regime, the maximum tax rebate you can claim is Rs. 25000/- under Section 87A.

• If you are not eligible for tax rebate under Section 87A you are liable to pay tax as per the income tax slab rates.

• The new tax regime is suitable for individuals who have not invested in any tax-saving instruments or availed of a home loan.

• If you opt for the old tax regime you will be eligible for deductions up to Rs. 2.00 lakhs under Section 24(b) on the interest paid on the home loan if you have availed of a home loan. You will also be eligible for a deduction under Section 80C up to Rs. 1.50 lakhs on the principal. You can claim a deduction up to Rs. 50000/- for interest paid on the home loan under Section 80EE and a deduction under 80EEA up to Rs. 1.50 lakhs on the interest paid towards the home loan.

Conclusion

Understanding the tax rebate meaning and the types of rebates available to incorporate them appropriately into your income tax filing routine is essential to reducing tax liability to a great extent. Seek professional advice for proper tax computation and reduction of tax liability.

FAQs on Income Tax Rebate

Q. What is the rebate for tax in 2023-24?

The tax rebate for tax in 2023-24 under Section 87A has been modified. Any individual with a total taxable income below up to Rs.7.00 lakhs is eligible for tax relief of Rs. 25000. However, the relief under Section 87A under the old tax regime remains the same, i.e., Rs. 12500/- for individuals with taxable income up to Rs. 5.00 lakhs. 

Q. What is the procedure for an NRI to claim a tax rebate?

The procedure for an NRI to claim a tax rebate is:

• The first step to claim a tax rebate is to establish the resident status during a financial year. 

• Further, the gross income has to be arrived at considering income from salary, capital gains on the sale of shares and mutual funds, interest earned on NRO deposits, and rental income.

• NRIs can claim benefits under tax treaties.

• If TDS is deducted from their income, they can claim a refund. For this, they must reconcile the TDS credit and advance tax as reflected in 26AS.

Q. What steps should I take to claim a tax rebate under Section 87A?

To claim a rebate in income tax under Section 87A, you should arrive at the gross taxable income by subtracting deductions under 80C to 80U. If your taxable income is below Rs. 5.00 lakhs, you can claim a rebate of Rs.12500 under the old tax regime, and if your taxable is below Rs. 7.00 lakhs, you can claim a rebate of Rs. 25000 under the new tax regime.

Q. Which deductions are provided by the Income Tax Act 1961?

Deductions under the Income Tax Act 1961 are provided for specific investments made and expenditures incurred to reduce your tax liability.

Q. What is the 80C tax rebate about?

Section 80C is about the tax deductions permitted for investments made in specific schemes and assets and expenses incurred like life insurance, PPF, NPS, Senior Citizen Savings Scheme, home loan principal, Equity-linked saving schemes, Tax saving fixed deposits etc.

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