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Introduction

Tax rebate is the refund, if the taxes paid is more than the actual taxes owed. This amount along with interest paid is received by or credited to the person at the end of the fiscal year. In this guide, find out all that you need to know about tax rebates in income tax.

What is an income tax rebate?

Tax rebate broadly signifies a reduction in the tax paid or payable. Governed by the provisions of Sec 87A of the Income-tax Act, it refers to various means and ways in which income tax assesses can reduce their overall tax liability. It is also differently known as  a tax refund in some cases, when it refers to reduction by way of a refund of tax already paid for a particular year. The term rebate also includes the deductions which are available under sections 80C, 24B, and 80D.

The Income tax act provides for an automatic rebate of up to Rs.12,500 in the case of assesses whose total income is Rs. 5 lakhs or less. A rebate comes into play when the tax deducted at source or paid in advance for any year, is higher than the total liability that is calculated as payable at the time of filing returns for the year. The provisions of the refund are mentioned under section 237 of the Income Tax Act. This rebate is initiated by the Department of Income Tax.

How to calculate tax rebate under Section 87A of the ITA?

A tax refund is governed by the provision of sec 87A which stipulates that an assessee whose total taxable income is less than 5 lakh for the year is eligible for a refund of Rs.12,500 on taxes collected at source and paid in advance for the year. Where the total taxable income is more than Rs. 5 lakhs, no refunds under this section can be claimed and the liability is calculated on total taxable income.

The benefit of the rebate under section 87A for the financial year 2020-21 if the following conditions are fulfilled if:

  • The individual is a resident of India
  • The income after deductions under chapter VI A should not exceed Rs. 5 lakh in the financial year

However, these provisions are revised from year to year based on economic decisions taken by the government and one needs to remain updated about current specifications of the section so as to avail maximum benefits. The following table is a simple illustration of rebate calculation

Total Income 

Tax payable before the cess is applied

Rebate provided under section 87 A

Tax payable + 4% cess

Rs 2,70,000

Rs 1000

Rs 1000

0

Rs 3,60,000

Rs 3000

Rs 3000

0

Rs 4,90,000

Rs 12000

Rs 12000

0

Rs 12,00,000

Rs 1,72,500

0

Rs 1,79,400

Other Tax rebates

Tax rebates are also available under various other sections like 86, 89,90, 90A, 91 etc. These apply to various sections of tax payers, based on the status of their residency, individuals, corporate entities etc. Let us examine them in brief.

  • Sec 86 provides for a rebate to an individual who is a member of an Association of Persons referred to as AOP, or Body of Individuals -BOP. This pertains to the income received by the individuals from these.
  • Sec 89 grants relief to a salaried employee when he receives salary that had accumulated but had not been paid to him earlier, that is arrears of salaries received during any year. This includes gratuity payments too.
  • Sec 90, 90A and 91 relate to taxpayers who earn income both in India and abroad. In such cases a taxpayer may be getting taxed at both places where he earns, based on the different laws prevailing in the country of earnings. That is, his income from foreign earnings may be getting taxed twice – at source and in India – known as Double Taxation. The above sections seek to provide relief for such double taxed income.

Tax Rebates under Section 80C

Under section 80 C, an assessee can claim a deduction of up to Rs. 1.5 lakh of the total income. This can also be directly reduced from the income which is taxable. This applies to individuals as well as Hindu undivided families. The income tax department will refund the excess tax paid upon filing of tax returns. A lot of taxpayers prefer section 80 C because this section directly trims the taxable income by up to Rs.1.5 lakh.

  • Individuals and Hindu Undivided Families are allowed a the tax rebate of the following investments and expenses under section 80 C :
  • NSC, SCSS, PPF
  • PF, voluntary as well as mandatory
  • ELSS
  • A pension fund or annuity
  • Life insurance premium
  • Five-year post office term deposit
  • Five-year bank fixed deposit
  • The principle on the home loan
  • The tuition fee for child’s full-time education
  • Registration and stamp duty on the purchase of a house
  • The maximum amount which can be deducted is Rs 1 lakh.
  • The deduction of provident fund is done directly from the monthly salary. So, proper checking must be done before ELSS and PPF are put under the deductions.

Tax Rebates under Section 80 CCC

This section deals with investments or payments to pension funds or annuity funds floated by Insurance companies in India. According to section 80 CCC, an amount which is paid for depositing in an annuity plan provided by LIC or any other recognized company of insurance in India will qualify for an income tax rebate.

The condition is however that the amount which is paid should be specified as being utilized towards the plan of receiving a pension as fund u/s 10 (23AAB). The lump sum amount which is received as bonus accrued or interest earned on annuity or by surrendering the annuity will however be taxable in the year of the receipt. If the investment made is purported to be utilized towards funds that do not pay a pension or annuity are not eligible for rebate under this section and again become taxable at normal rates.

Tax Rebates under Section 80 CCD

An individual who deposits or contributes to the pension account can get the benefit of the tax rebate under section 80CCD (1). If the person is an employee then the maximum tax rebate which they can get in India is less than 10% of the gross income or 10% of the salary. Those persons who are self-employed can get a 20% deduction from their gross salary according to the Fiscal Year 2017-18.

Note – The combined tax rebate in India which one can get under section 80C, 80CCC, 80CCD (1) is capped at Rs 1.5 lakh.

The taxpayers can also get an additional tax rebate of Rs. 50,000 under section 80CCD (1B) subject to the deposit or self contribution to their Atal Pension Yojana or NPS account. An additional tax rebate of 10% of the salary of the employee is allowed subject to the contribution of the employer under section 80CCD (2).

Tax Rebates under Section 80 D

This section pertains to rebates on payment of premium of health insurances. Employees of companies can also get the deduction on the taxes by presenting the proof to their HR department so that the adjustments can be made while they apply for the TDS on their pay. In case this sum is not deducted by HRD at source, they can also incorporate it in their Income tax returns filings.

Tax Rebates under Section 80 EE

Income tax rebate is also available on the interest which is paid on various loans in the following cases:

  • The loan amount is Rs. 25 lakh or less and the cost of the residential house is Rs. 40 lakh or less.
  • The house bought through the home loan must be the only house owned during the time of loan sanction.

The maximum deduction allowed on interest paid on housing loans under section 80 EE is Rs. 1 lakh.

How to claim an income tax refund?

An individual can claim the refund of the excess tax deducted or paid during the financial year by filing for the income tax returns for that particular year. According to the income tax act, a person must file the return in the relevant assessment year by July 31 ( unless the deadline is extended ) for claiming the refund. The financial year (FY) following the financial year is the relevant AY (Assessment Year) for that FY. Returns can be filed online.

From the last year 2019, pre-filed ITRs are provided by the tax department on an online platform. This form is filled with the information about the interest income ( if TDS is deducted), salary income and other details. After the filling in the details in the returns, there is a system validation required. The system will then auto calculate the refund which is due (based on the data entered) and show the refund amount.

Once processed, the assessee gets an intimation of the total tax liability for the year, refunds or even shortfalls if any. Refunds do not require any action, while shortfalls will require a further deposit of relevant amounts to the income tax department. It is important to ensure that the details of a validated bank account linked to a PAN account as provided here, so as to enable the department to process our refund and credit it to our account.

FAQs on Tax Rebates

1. Can NRIs claim their rebate under section 87 A?

No, this income tax rebate is only allowed for resident Indians. So, those taxpayers who are qualified as NRIs in any particular year will not be eligible under this section.

2. How can section 87 A claim be claimed In ClearTaxSoftware?

While e-filing is done, Clear tax e-filing gives the rebate automatically if you are eligible.

3. Can tax rebates be claimed every year?

Yes tax rebates can be claimed every year by the same individual based on the various sections as discussed above. Tax returns must be filed by carefully considering the provisions of the various sections which allow for reductions, and a refund claimed under each section separately. Examples of reductions that can be claimed every year are payments made towards housing loan interests, health insurance premiums, payments or investments in pension or annuity funds etc. A careful study of all such provisions in detail can result in a significant reduction in the total tax liability as well as forcing an investment in several beneficial schemes with long term benefits.

4. How to claim rebate on donation given to an organisation registered under section 80G

To claim a rebate on an amount you have donated to a registered organisation all you need to do is provide the following details in the return of income form.

  • Name of donee;
  • PAN of donee;
  • Address of donee;
  • Amount of donation.

5. Can I Claim Tax rebate on a housing loan under section 80C?

Section 80C states that one can claim deduction with a limit of 1.5 lakhs but only on the principle paid for the housing loan. But only if the loan is taken out for a newly constructed house and is held for a minimum of 5 years. But this is possible only if the loan borrowed by the assessee is from The Central or State Government, LIC, National Housing Banks etc.Section 24(b) also allows interest to be deducted on housing loans under ‘ income from housing property’.

6. How to file Form 10E?

It has to be filed online. Login using your account information and date of birth in the official income tax filing government website. Click on the e-file and Income Tax Form tabs and follow the below options.Form Name: Form No. 10E – Form for relief u/s 89 Assessment Year: 20XX – 20XX Submission Mode: Prepare And Submit Online

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