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Income Tax Rebate? What is Income Tax Rebate?

Income Tax rebate is the refund or reduction amount offered by the Income Tax when you file your taxes. 

All you need to know about an Income Tax Rebate.

In the most generic terms, an income tax rebate is a refund that you as a taxpayer are eligible for in case the taxes you pay exceed your liability. After adequate and appropriate assessment and compliance, you will be intimated for your income tax rebate, which will be directly credited to your account at the end of the financial year. 

One of the income tax provisions to aid you to reduce your income tax liability is the provision of a rebate under Section 87A of the Income Tax Act. Under this section, you can claim an income tax rebate if your total income for the financial year does not surpass Rs. 5 lakhs. Your income tax liability converts to nil payable after you claim a refund under Section 87A. 

Things to keep in mind for Income Tax rebate

Income tax is to be paid by all individuals of the country, though to claim an income tax rebate under Section 87A, you need to keep the following pointers in mind: 

- A tax rebate is claimable only by a Resident Indian citizen. 

- Overall income after considering deductions is less than Rs. 5 lakhs. 

- Maximum amount of permissible income tax rebate is Rs. 12,500 under Section 87A. Hence if your total tax liability is less than Rs. 12,500 the entire amount is granted as an income tax rebate. 

If you are not eligible under Section 87A of the Income Tax, then you will be taxed as per the specific income tax slab rate you come under as per your yearly income. 

To apply for an income tax rebate or refund, all you need to do is file your Income Tax returns promptly, verify them and claim the requisite refund or rebate.

- Though an income tax rebate is under Section 87A, there are also other income tax reductions such as Section 80C, 80D, 80EE , 80TTA, 80G, Section 54, Section 54EC, Section 24b, Section 80CCG, Section 10(13A), Section 80GGA, Section 24a

Section 10(5),Section 80DD Section 80GGC Section 80E Section 80DDB Section 80GG Section 80U Section 54F Section 10(10D) and Section 80CCF to aid in lowering your taxable income.  

- The income tax rebate is applied to the total tax amount before including the health and education cess of 4%. 

- Senior citizens between the age of 60 years to 80 years can avail of this rebate under Section 87A. 

- Super senior citizens above the age of 80 years are not eligible to claim this rebate. 

- Rebate under Section 87A is available under the old and new tax regime. 

How is Tax Rebate Calculated? 

To understand how tax rebate is calculated, we have curated a simple example for you. 

  • Firstly, you need to evaluate your gross taxable income by considering the deductions or rebates you can claim. For instance, under Section 80 C, you can claim a deduction up to Rs. 1.5 lakh to lower your actual taxable income. 
  • If your gross taxable income is below Rs. 5 lakhs, then a rebate under Section 87A can be applied with a total amount of Rs. 12,500. 
  • If your gross taxable income surpasses Rs. 5 lakhs, you will be taxed at the applicable income tax slab as per your income for the fiscal year. 
  • Lastly, if your tax payment for the financial year exceeds your tax liability, you are eligible for an income tax refund.

 

Description

Income of Person 1 (in Rs)

Income of Person 2 (in Rs)

Annual income

6,50,000

10,00,000

Section 80C deduction

1,50,000

1,50,000

Gross Taxable Income (A)

5,00,000

8,50,000

Tax slab rate

5%

20%

Tax on GTI (A)

12,500

82,500

Section 87A rebate

12,500

Nil

4% cess on (A)

Nil

3,300

Total tax

Nil

85,800

Net Income Tax payment

2,000

90,000

Minimum income tax refund

2,000

4,200

 

A detailed understanding of what is income tax rebate. The next time you file your taxes, do keep in mind to utilise all the rebates and deductions available to reduce your net income tax payable for the financial year.

Disclaimer :ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. Please note, filing of tax related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. The content is solely for informational and educational purpose. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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