What is Rebate in Income Tax?

As a taxpayer, you must have been in a situation where your employer paid TDS more than your actual tax liability. You may have also encountered a situation in which you paid more tax than you actually owed because you were unaware of the various tax provisions. In such cases, you can recover the excess amount paid in taxes in the form of a rebate. This blog will inform you about the various tax rebates you can avail.
 

What is Tax Rebate?

A tax rebate refers to a tax refund when the actual tax liability is lower than the taxes paid. For example, if your actual tax liability is Rs 40,000, but your employer has deducted a TDS of Rs 50,000, you are eligible for a refund of Rs 10,000.
 
The rules and regulations pertaining to tax rebates are specified in section 237 and section 87A of the Income Tax Act. 
 

Eligibility Criteria for Tax Rebate Under Section 87A

• The rebate applies to the total tax payable before the addition of the 4% health and education cess.
   
• Tax rebate benefit is available to resident individuals only.

• This tax benefit does not apply to super senior citizens over the age of 80 years. 

• Rebates are available for both new and old income tax regimes. 

• In order to receive tax rebate benefits, your total income after subtracting the deductions available under Chapter VI-A must not exceed Rs 5 lakh.

 
Also Read: Your Guide To Tax Benefits On Loans Against Property
 

Types of Income Tax Rebate in India

 
Most taxpayers in India are only aware of the investment-related tax benefits available under sections 80C and 80D. However, there are several other sections as well that provide tax benefits. Some of these are described below.
 

1. Interest on home loan (Section 80EE)

   Section 80EE of the income tax allows you to claim a tax rebate on the interest payment of the home loan availed to buy a house property. 
    

   Eligibility for Section 80EE Rebate

   • Under this section, you can claim a maximum deduction up to Rs 50,000.

    

   • The loan must be disbursed between 01.04.2016 to 31.03.2017. 

    

   • The fund value should not exceed Rs 35 lakh.

    

   • You must not have any other house property to your name at the time of home loan approval. 
      
   • The value of the house property at the time of loan approval must not exceed Rs 50 lakhs.

    

2. Home loan interest payment (Section 24B)

   Section 24B deals with the interest payment on a home loan. You can claim a deduction of up to Rs 2 lakh under this loan. 
    

   Eligibility for Section 24B Rebate

   • The property in question must be self-occupied.

    

   • In case the property in question is constructed, repaired, or renovated using the home loan amount before 1st April 1999, the maximum permissible deduction is Rs 30,000. 

    

   • In case you have availed of a home loan and have completed the construction of the property within three years from borrowing, you can claim a deduction of up to Rs 1.5 lakh. However, in order to qualify under this condition, funds must have been borrowed after April 1, 1999. 

    

3. Payment towards Scientific Research (Section 80GGA)

   Section 80GGA deals with tax deductions for donations made to scientific research. The maximum allowable deduction in this case is 100% of the amount donated.
    

   Eligibility for Section 80GGA Rebate:

    

   • The donation will qualify for tax benefit only if it is made to the scientific research association approved or recognised by the government.

    

   • If you have made payment in cash, you only qualify for the deduction of up to Rs 10,000. 

    

4. Interest Income from Bank Savings (80TTA)

   Section 80TTA allows you to avail tax benefits on the interest income received from your savings bank account.
    

   Eligibility for Section 80TTA Rebate:

   • This section applies to both individuals and HUF.
   • Under this section, you can claim a maximum deduction up to Rs 50,000.
   • This section does not apply to time deposits like FDs and RDs.

    

5. Capital Gains (Section 54)

   Section 54 deals with the profit made from the sale of residential property. The tax benefit will be applied to the amount used to purchase another property.
    

   Eligibility for Section 54 Rebate:

    

   • You are eligible for a tax benefit only if you purchase another residential asset one year before or two years after the property is sold.

    

   • This section has a three-year lock-in period. It means you can avail of this benefit only if you sell the property after holding it for at least three years from the date of purchase.

    

6. Capital Gains (Section 54EC)

   Section 54EC deals with profits made from the sale of real estate, such as land or buildings, which are then invested in specific types of bonds.
    

   Eligibility for Section 54EC Rebate:

   • The maximum investment amount in the bond must not exceed Rs 50 lakh in a given financial year. 

    

   • The investment must be made within six months of the property sale.

    

   • The investment must be made for at least three years. 

    

   • Some of the bonds in which you can invest include central government bonds, NHAI, RECL, etc.

    

7. House Rent Allowance (Section 10 (13A))

   HRA is provided by your employer to cover your accommodation expenses. The maximum exemption limit here is the minimum of the following. 
    

   • Actual HRA
   • Rent paid in excess of 10% of your salary
   • 50% of your salary in case you reside in a metro city in India and 40% if your accommodation is in a city other than a metro. 

    
   The HRA taxation benefit is only available if you live in a rented home.
    

How to calculate rebate and relief of tax?

 
You can calculate the income tax rebate under section 87A by taking the following steps. 
 
Step 1:
Compute your total gross income for the financial year.
 
Step 2: 
Subtract the various deductions available for different investment and saving schemes from your income.
 
Step 3:
Fill out the ITR with your gross taxable income and any claimed deductions.
 
Step 4:
In case your total annual income is less than Rs 5 lakh, you can claim a tax rebate under Section 87A. The maximum rebate for the assessment year 2022-23 is Rs 12,500.
 
Let's take an illustration to understand this calculation better.
 
Assume you are 35 years old and earn Rs 6 lakh per year. The tax rebate calculation is as follows.
 

To conclude

The Indian Income Tax Act has various provisions to reduce your tax liability by applying for rebates. However, these rebates can only be availed at the time of filing your taxes. In addition, you would be eligible for a tax rebate only if your gross annual taxable income (after deductions) is below Rs 5 lakh. But if your income exceeds this limit, you must pay taxes according to your income tax slab.