Income Tax Rebate

Table of Content

1. What is Income Tax Rebate??

2. How to Get a Tax Rebate in Income Tax?

3. Types of Income Tax Rebates in India

4. How To Claim Income Tax Rebate?

5. Eligibility Criteria to Claim Income Tax Rebate in India

6. How To Calculate Income Tax Rebate?

7. Points To Remember

8. Conclusion

9. FAQs on Income Tax Rebate

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 2025 (Corresponding to 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 2025 (Corresponding to 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 tax year under Section 153 of the Income Tax Act, 2025 (corresponding to Section 80TTA of the Income Tax Act, 1961)  if it is within Rs. 10,000/-.

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. 50,000/- in a tax year under Section 130 of the Income Tax Act, 2025 (corresponding to Section 80EE of the Income Tax Act, 1961), subject to satisfaction of prescribed conditions therein. This deduction is available only for loans sanctioned between 1 April 2016 and 31 March 2017. 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.

Other than this, you can also avail of a tax benefit under Section 22 of the Income Tax Act, 2025 (corresponding to Section 24(b) of the Income Tax Act, 1961) for the home loan interest paid up to a maximum of Rs. 2.00 lakhs in a tax year 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 129 of the Income Tax Act, 2025 (corresponding to Section 80E of the Income Tax Act, 1961). The entire interest will be eligible for tax benefits for eight years, without any maximum monetary limit, starting from the year in which you begin paying the interest or until the interest is fully repaid, whichever is earlier.

4. Health Insurance Premiums 

If you have purchased a health insurance premium, you can claim a tax rebate for the premium paid under Section 126 of the Income Tax Act, 2025 (corresponding to Section 80D of the Income Tax Act, 1961). These premiums could be for the health insurance of self,spouse or dependent children upto limit of ₹25,000 (₹25,000 is replaced with ₹50,000 if any is senior citizen) and for parents upto limit of ₹25,000 (₹25,000 is replaced with ₹50,000 if parents are senior citizen ). You can also claim a deduction of up to ₹5,000 for preventive health check-up expenses although paid in cash, within the applicable overall deduction limit.

5. Charities and Donations

Charities and donations made to specific eligible charitable institutions, funds, and organisations will get a rebate in income tax under Section 133 of the Income Tax Act, 2025 (corresponding to Section 80G of the Income Tax Act, 1961), subject to the applicable conditions and limits.

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 123 of the Income Tax Act, 2025 (corresponding to Section 80C of the Income Tax Act, 1961)

Most taxpayers prefer Section 123. Section 123 reduces the taxable income by 1.50 lakhs in a tax year. 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 126 of the Income Tax Act, 2025 (corresponding to Section 80D of the Income Tax Act, 1961)

The rebate in income tax under Section 126 is available for premiums paid towards health insurance. Premiums paid for health insurance for spouse, children, and parents are also eligible for income tax rebate under this Section subject to overall limit of ₹1 lakh in a tax year. 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 22 of the Income Tax Act, 2025 (corresponding to Section 24(b) of the Income Tax Act, 1961)

A rebate in income tax can be availed on the interest paid on home loan repayments under Section 22. The maximum rebate permitted is Rs. 2.00 lakhs in a tax year. This rebate applies only to home loans availed for self-occupied residential property.

4. Section 129 of the Income Tax Act, 2025 (corresponding to Section 80E of the Income Tax Act, 1961)

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 129. The deduction for the entire interest amount paid can be claimed for eight years, starting from the year in which you begin paying the interest or until the interest is fully repaid, whichever is earlier.

5. Section 133 of the Income Tax Act, 2025 (corresponding to Section 80G of the Income Tax Act, 1961)

Individuals can claim an income tax rebate for the donations made to specific eligible charitable institutions, funds and organisations, subject to the prescribed limits and conditions. The extent of the tax rebate depends on the organisation for which the donation is made and maybe 50% or 100% of the eligible donation, with applicable certain limits (if any).

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 130 of the Income Tax Act, 2025 (corresponding to Section 80EE of the Income Tax Act, 1961)

The tax rebate meaning under Section 130 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 loan must satisfy the specific statutory conditions, including being sanctioned between 1 April 2016 and 31 March 2017. The maximum rebate permitted is up to Rs. 50,000/- in a tax 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, thereby preventing a double tax benefit.

7. Section 135 of the Income Tax Act, 2025 (corresponding to Section 80GGA of the Income Tax Act, 2025)

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 135, subject to satisfaction of certain conditions prescribed therein.

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

8. Section 153 of the Income Tax Act, 2025 (corresponding to Section 80TTA of the Income Tax Act, 1961)

Section 153 provides tax deductions up to Rs. 10000/- in a tax year for the income earned on savings deposits at banks, post offices, and cooperative societies.

9. Section 82 of the Income Tax Act, 2025 (corresponding to Section 54 of the Income Tax Act, 1961)

Under Section 82 if the owner (Individual or HUF), 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. If the capital gains exceed the cost of the new asset, the excess remains taxable. Unutilized gains must be deposited under the Capital Gains Accounts Scheme before the due date of filing the return of income.

10. Section 85 of the Income Tax Act, 2025 (corresponding to Section 54EC of the Income Tax Act, 1961)

Section 85 provides for the exemption of capital gains tax if the long-term capital gains are invested in specified instruments with a pre-defined tenure like land or building or both. 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, subject to the prescribed conditions. Only long-term investments in specified assets will be eligible for the exemption, subject to a maximum investment limit of ₹50 lakh and the applicable 5-year lock-in period.

11. Section 11 read with Schedule III of the Income Tax Act, 2025 (corresponding to Section 10(13A) of the Income Tax Act, 1961)

House Rent Allowance (HRA) is a component of the salary, and you claim an exemption for HRA under Section 11 read with Schedule III if you are staying in a rented house and claiming HRA from your employer, to the extent of the least of: (a) actual HRA received, (b) rent paid in excess of 10% of salary, or (c) 50% of salary (metro cities) / 40% of salary (other cities). 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 156 and 123 read with Schedule XV as per the Income Tax Act, 2025.

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 returns at 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, subject to a maximum rebate of ₹12,500. Under the New Tax Regime (default regime), if your total income does not exceed ₹12 lakh, you may be eligible for a maximum rebate of ₹60,000 under Section 156, subject to applicable conditions, which can help you claim a refund of TDS deducted, if any

• IIf your income is more than Rs. 5.00 lakhs, then investments and expenses that fall under various Sections like 123, 126, 124, etc can reduce your tax liability, if opted for Old Tax Regime.

• Individuals with a gross income of up to Rs.5.00 lakhs / Rs. 12 lakhs are also eligible for an income tax rebate

How To Calculate Income Tax Rebate?

To calculate your income tax rebate before filing, use an income tax calculator. It might help to estimate potential rebates, allowing you to plan your finances and prepare for your tax return submission.

• 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:

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 123, 130, 129, 22, 131, etc as per Income Tax Act, 2025 (corresponding to Sections 80C, 80EE, 80E, 24(b), 80EEA etc. as per Income Tax Act, 1961)

• Under the new tax regime, the maximum tax rebate you can claim is Rs. 60,000/- under Section 156, where total income does not exceed ₹12,00,000.

• If you are not eligible for tax rebate under Section 156 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 22 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 123 read with Schedule XV 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 130 and a deduction under 131 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 2026-27?

The tax rebate for tax in 2026-27 under Section 156 has been modified. Any individual with a total taxable income up to Rs.12 lakhs is eligible for tax relief of upto Rs. 60,000. However, the relief under Section 156 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 under NRI taxation in India 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 156?

To claim a rebate in income tax under Section 156, you should arrive at the gross taxable income by subtracting deductions under 123 to 154. If your taxable income is below Rs. 5.00 lakhs, you can claim a rebate of Rs.12,500 under the old tax regime, and if your taxable income is below Rs. 12 lakhs, you can claim a rebate upto Rs. 60,000 under the new tax regime.

Q. Which deductions are provided by the Income Tax Act 2025?

Deductions under the Income Tax Act 2025 are provided for specific investments made and expenditures incurred to reduce your tax liability.

Q. What is the 123 tax rebate about?

Section 123 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. available upto overall ceiling limit of ₹1.5 lakh in a tax year.