All Indian taxpayers are required to file their income tax returns (ITR) and while the e-filing process has become quicker and easier over the years, the process can be daunting for first-time filers. Here is a breakdown of what rebate is offered and how you can apply for it.
What is rebate? How much can you claim?
Rebate reduces tax payable by deducting a fixed amount from the calculated tax for middle to low-income earners.
Under the old regime, a rebate of ₹12,500 is allowed for an income up to ₹5 lakhs, while the new tax regime allows rebate of ₹60,000 for income up to ₹12 lakhs.
How is rebate applied?
Notably, unlike income tax exemptions and deductions, rebate under Section 87A is to be claimed by individual taxpayers from the total tax payable within the 10% tax slab.
According to Clear Tax, rebate can be applied to the total tax before adding a health and education cess of 4%.
How to claim rebate in ITR filing?
- Total your gross total income for the financial year.
- Exclude exemptions and deductions as applicable for investment and tax savings, etc.
- Declare your total taxable income in ITR after factoring in deductions.
- Claim rebate under section 87A for income within prescribed limits (mentioned above).
The Income-Tax Department reportedly allows taxpayers to claim rebate in the updated ITR forms — ITR-2 and ITR-3.
Rebate: What is marginal relief?
Under the new tax regime, for individuals whose income exceeds the ₹12 lakh limit with a slight gap, and where the tax exceeds the income over the cap, the tax is limited to income exceeding ₹12 lakh, the Clear Tax report added.
For example: For income of ₹12.15 lakh the income over limit is ₹15,000. For the full income, the tax would work out to ₹62,250. But with marginal relief factored in (tax more than income over limit i.e. 62,250 > 15,000), the difference is calculated as rebate (62,250 – 15,000 = 47,240).
Thus, you tax liability would be calculated tax – rebate (62,250 – 47,240) = payable tax (15,000) + health and education cess at 4% = ₹15,600. This has effectively brought down your tax liability from ₹62,250 to ₹15,600.
Under what circumstances is rebate not allowed?
Rebate cannot be claimed against:
- Long-term capital gains (LTCG) under Section 112A of the Income Tax Act, which deals with profits from shares.
- Short-term capital gains (STCG) under Section 111A of the Income Tax Act, which also deals with profits from shares.
- For income taxed at special rates such as winnings from lottery and game shows.
- Companies and Hindu Undivided Families (HUFs) cannot claim rebate under Section 87A.
- Non-resident Indians (NRI) are also not eligible for a rebate under 87A.
What is the difference between rebate vs deduction vs exemption?
Deductions are offered under various sections under the Income Tax Act while rebate is available only u/s 87A. Further, exemptions are provided on sources of income as defined in the ITA.
