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Understanding Income Tax Rebate in India

Income tax rebates are indispensable tools in tax planning, allowing individuals to enhance their financial strategies.

  • 1,720 Views | Updated on: Jun 06, 2024

Understanding the importance of these rebates is essential for maximizing financial benefits. They serve as effective tools for enhancing individuals’ financial health by facilitating tax savings. It is equally important for taxpayers to have a thorough understanding of the eligibility criteria governing these rebates.

Key Takeaways

  • An income tax rebate is a government benefit that reduces taxpayers’ total tax liability, encouraging savings and investment.
  • For an income tax rebate under Section 87A, taxpayers must meet the eligibility criteria of being a resident individual and having a total taxable income within specified thresholds.
  • Income tax rebates provide tax relief for individuals, encourage savings and investments, and promote economic growth.
  • Various income tax rebates are available, including those for interest on education loans, savings bank interest, and house rent allowance exemption.

This knowledge empowers taxpayers to capitalize on available opportunities for tax optimization proactively. Taxpayers should discover the importance of income tax rebates and the need to understand eligibility criteria.

What is Income Tax Rebate?

Income tax rebate is a benefit provided by the government to taxpayers that allows them to reduce their total tax liability. It is the government’s reduction in the amount of tax to the taxpayers to promote savings and investment. In India, income tax rebates are crucial in providing substantial relief to taxpayers, particularly those in the middle-income segment.

A tax rebate includes reducing the tax amount that individuals must pay. It is an incentive the government offers to encourage savings, specifically outlined in Section 237 of the Income Tax Act. By implementing tax rebates, the government aims to promote a culture of savings and financial security among taxpayers.

Explaining the Concept of Rebate

A rebate is a form of partial refund or discount provided after a purchase. Unlike discounts, which reduce the initial cost, rebates involve customers paying the full price upfront and receiving a portion of that amount back later. Businesses often use This marketing tactic to stimulate sales, attract customers, or promote specific products.

Rebates can come in various forms, such as cashback, gift cards, or vouchers, and may have specific requirements or conditions for eligibility. While appealing to consumers seeking savings, income tax rebates also benefit businesses by encouraging brand loyalty and increasing sales volume.

How to Qualify for Income Tax Rebate?

Qualifying for an income tax rebate under Section 87A involves meeting specific criteria and adhering to certain regulations outlined by tax laws. This rebate serves as a beneficial mechanism for taxpayers aiming to reduce their tax burdens and enhance savings. Now, let us explore the key pointers that determine eligibility and the steps involved in calculating the rebate amount.

Eligibility Criteria for Claiming Rebate

To qualify for the income tax rebate under Section 87A for the fiscal year 2024-25, taxpayers need to meet certain eligibility criteria. Here’s what you need to know:

Residential Status

Taxpayers must be resident individuals in India to claim the income tax rebate under Section 87A. Typically, income tax rebates are available to resident individuals who fulfill the criteria outlined by the tax laws of their respective countries. Non-resident individuals may have different eligibility criteria or not qualify for certain rebates.

Total Taxable Income

Under the old tax regime, individuals with a total taxable income of up to ₹5,00,000 are eligible for the rebate. However, under the new income tax regime, individuals with a total taxable income of up to ₹7,00,000 can claim the income tax rebate.

Choice of Tax Regime

The eligibility criteria for claiming the rebate may vary depending on whether the taxpayer opts for the old or new tax regime. Taxpayers should carefully consider their options and assess which regime best fits their financial situation.

Calculation of Rebate

The income tax rebate amount is calculated as the lower of the income tax payable on the total income or a specified amount. For example, for individuals with total taxable income up to ₹7,00,000 under the new tax regime, the income tax rebate is limited to the lower income tax payable or ₹25,000.

Additional Rebate

In certain cases, where the total income exceeds ₹7,00,000, but the tax payable on such income exceeds the income amount over and above ₹700,000, taxpayers may still be eligible for an income tax rebate. This additional income tax rebate is calculated based on the excess income above ₹7,00,000.

To determine the income tax rebate under Section 87A, taxpayers need to follow these steps:

  • Step I – Calculate excess above ₹7 lakhs (A): Subtract ₹7,00,000 from the total income to determine the excess income above ₹7 lakhs.
  • Step II – Compute income-tax liability on total income (B): Calculate the income tax liability on the total income using the applicable tax rates and slabs.
  • Step III – Determine rebate eligibility: If the income tax liability (B) exceeds the excess income above ₹7 lakhs (A), the taxpayer is eligible for an income tax rebate under Section 87A, which is calculated as (B - A).

Calculating Income Tax Rebate

Understanding how to calculate income tax rebates is crucial for taxpayers aiming to optimize their tax liabilities. An income tax rebate refers to the reduction in tax owed, often provided by governments as incentives to promote specific behaviors or support certain groups. By following a systematic approach, individuals can accurately determine their rebate eligibility based on deductions, exemptions, and investments, ultimately reducing their overall tax burden.

Step-by-Step Guide to Calculate Rebate

When determining your income tax rebate, follow these steps to ensure accuracy and maximize your savings:

Determine Taxable Income

Calculate your taxable income by subtracting exemptions and deductions from your gross income. This gives you an income subject to taxation.

Identify Exemptions

Identify any income items exempt from tax, such as interest earned on tax-saving instruments or certain allowances.

Consider Deductions

Consider eligible expenses or investments that qualify for tax deductions, such as contributions to Provident Fund, insurance premiums, or donations to approved charities.

Calculate Tax Payable

Use the applicable income tax rebate slab rates to determine the tax owed based on your taxable income. Refer to the current tax brackets and rates provided by the tax authorities.

Claim Tax Rebates

Under the relevant sections of the Income Tax Act, claim tax rebates for investments and expenses made. Ensure you fulfill all eligibility criteria and have the necessary documentation to support your claims.

Deduct Tax Rebate

Subtract the income tax rebate amount from the tax payable to arrive at your final tax liability. This reduces the overall amount of tax you owe to the government.

How to Claim Income Tax Rebate?

Claiming income tax rebates is an essential aspect of tax planning for individuals seeking to minimize their tax liabilities. Understanding the process of claiming rebates allows taxpayers to leverage available incentives provided by the government effectively. By following the prescribed procedures and meeting eligibility criteria, individuals can reduce their tax burdens through deductions and exemptions tailored to specific circumstances.

Step-by-Step Process for Claiming Rebate

To claim an income tax rebate in India for the fiscal year 2024-25, follow these steps:

Determine Eligibility

Check if you meet the eligibility criteria for claiming an income tax rebate. Rebates are typically available for particular categories, such as senior citizens, individuals with certain disabilities, or taxpayers in specific income brackets. Make sure you meet the criteria specified by the Income Tax Department.

Calculate Taxable Income

Calculate your total taxable income by considering all sources of income, including salary, business profits, capital gains, and other applicable income. Deduct eligible deductions and exemptions to arrive at the final taxable income amount.

Identify the Rebate Section

Identify the relevant section under which you can claim the income tax rebate. The specific section depends on the nature of the rebate you are eligible for. Common rebate sections include Section 87A (for lower-income individuals) and Section 80C (for certain investments and expenses).

Gather Necessary Documents

Collect all supporting documents required to claim the rebate. This may include investment proofs, certificates, receipts, and other relevant documents as per the rebate section you are claiming.

File Income Tax Return

Prepare and file your income tax return using the appropriate forms (such as ITR-1, ITR-2, etc.) based on your income sources. Ensure that you accurately report your income and deductions and claim the rebate under the appropriate section.

Verify and Submit

Review your income tax return for accuracy and completeness. Make sure all necessary details, including the rebate claim, are entered. Once satisfied, submit your income tax return electronically through the income tax e-filing portal or physically submit it to the designated Income Tax Office.

Types of Tax Rebates Available

Understanding the various types of income tax rebates available can help taxpayers optimize their tax-saving strategies effectively. Here are some key types of income tax rebates, along with explanations:

Interest on Education Loan - Section 80EE

Under Section 80EE of the Income Tax Act, taxpayers can claim a deduction for the interest paid on education loans taken for higher education. This deduction is available for individuals who have taken the loan for themselves, their spouse, or their children. The deduction can be claimed for a maximum of eight assessment years, starting from the year in which the individual starts repaying the loan’s interest. The deduction is subject to certain conditions and limits specified under the section.

Deduction for Scientific Research - Section 80GGA

Section 80GGA of the Income Tax Act allows taxpayers to claim a deduction for contributions to scientific research and rural development. This deduction is available to individuals, Hindu Undivided Families (HUFs), and companies. Donations made to specified entities engaged in scientific research or rural development projects are eligible for deduction under this section. Taxpayers need to ensure that the organization to which they are donating is approved by the government for this deduction.

Savings Bank Interest - Section 80TTA

Section 80TTA of the Income Tax Act allows taxpayers to claim a deduction on the interest earned from savings bank accounts. Individuals and HUFs can claim a deduction of up to a specified limit on the interest earned from savings bank accounts held with banks, cooperative societies, or post offices. The deduction limit is applicable per financial year and is separate from other deductions available under the Income Tax Act.

Capital Gains Rebate - Section 54

Section 54 of the Income Tax Act provides an income tax rebate on the capital gains arising from the sale of a residential property. Individuals can claim this rebate by reinvesting the capital gains amount in another residential property within a specified time frame. The rebate effectively reduces the tax liability arising from the capital gains on the sale of the original property.

Capital Gains Rebate - Section 54 EC

Under Section 54EC of the Income Tax Act, taxpayers can claim an income tax rebate on long-term capital gains by investing in specified bonds issued by government institutions. The investment in these bonds must be made within a specified period from the date of transfer of the capital asset, and the amount invested is eligible for deduction from the capital gains, thereby reducing the tax liability.

Home Loan Interest Payment - Section 24B

Section 24B of the Income Tax Act allows taxpayers to claim a deduction on the interest paid on home loans taken for the purchase, construction, repair, or renovation of a residential property. The deduction is available for self-occupied and let-out properties, subject to certain conditions and limits specified under the section. This deduction helps taxpayers reduce their tax liability by offsetting the interest expenses incurred on home loans.

House Rent Allowance Exemption - Section 10(13A)

The House Rent Allowance - HRA rebate, governed by Section 10(13A) of the Income Tax Act, offers relief to salaried individuals by exempting the HRA received from their employers. This exemption is available to individuals who receive HRA as part of their salary and incur expenses towards rent for their accommodation. The exemption amount is determined based on specified criteria, including the actual HRA received, rent paid, and the city of residence. Taxpayers can claim this exemption to reduce their taxable income, lowering their tax liability.

Understanding Income Tax Rebate under Section 87A

Income Tax Rebate under Section 87A relieves individual taxpayers by reducing their tax liabilities. Understanding its provisions, eligibility criteria, and claiming process is essential for maximizing tax benefits.

Rebate Provisions for Different Financial Years

The rebate amount under Section 87A varies for different financial years. As of the fiscal year 2024-25, taxpayers with total income not exceeding a specified threshold are eligible for a rebate of up to a certain limit. It is crucial to stay updated on the latest rebate provisions for each financial year to maximize tax savings.

Steps to Claim Rebate under Section 87A

To claim the rebate under Section 87A, taxpayers need to follow a few simple steps:

  • Firstly, ensure that your total income does not exceed the prescribed threshold.
  • Next, calculate your tax liability after applying for deductions and exemptions.
  • If your tax liability is below the specified limit, you can claim the rebate by adjusting it against your tax payable.
  • Finally, file your income tax return accurately, including details of the rebate claimed under Section 87A.

Eligibility Criteria for Claiming Rebate under Section 87A

Taxpayers must meet certain criteria to be eligible for the rebate under Section 87A. These include having a total income below the specified threshold and being a resident individual. Non-resident individuals and Hindu Undivided Families (HUFs) are not eligible for this rebate. It’s essential to carefully assess your eligibility before claiming the rebate to avoid discrepancies.

Importance and Benefits of Tax Rebate

Income tax rebates hold significant importance in taxation, offering numerous benefits to both individuals and the economy as a whole.

Tax Relief for Individuals

Income tax rebates provide much-needed relief to individual taxpayers by reducing their overall tax liabilities. This translates into more disposable income for taxpayers, enabling them to effectively meet their financial obligations and pursue personal goals.

Encouragement of Savings and Investments

Many income tax rebates are designed to incentivise savings and investments in various sectors of the economy. By offering tax incentives for activities such as contributing to retirement funds, purchasing insurance policies, or investing in specified assets, governments promote long-term financial planning and wealth accumulation among taxpayers.

Promotion of Economic Growth

Income tax rebates play a crucial role in stimulating economic growth by channeling funds into priority sectors. For instance, rebates for investments in infrastructure projects, research and development initiatives, or small and medium-sized enterprises (SMEs) encourage capital flow into these areas, fostering innovation, job creation, and overall economic development.

Support for Specific Groups

Certain income tax rebates are targeted towards specific demographic groups or socio-economic objectives. Rebates for senior citizens, individuals with disabilities, or low-income earners aim to provide targeted assistance and alleviate financial burdens for vulnerable populations, promoting inclusivity and social welfare.

Compliance and Taxpayer Satisfaction

By offering tax incentives through rebates, governments enhance taxpayer compliance and satisfaction. Taxpayers are more likely to voluntarily fulfill their tax obligations when they perceive the tax system as fair and supportive of their financial interests. This fosters a positive relationship between taxpayers and tax authorities, contributing to overall tax administration effectiveness.

Stimulus for Consumer Spending

In times of economic downturn or recession, income tax rebates can serve as effective stimulus measures to boost consumer spending. By putting more money into the hands of taxpayers through rebates, governments stimulate demand for goods and services, thereby revitalizing economic activity and supporting businesses.

Conclusion: Maximizing Tax Benefits through Rebates

Income tax rebates offer a valuable opportunity to minimize tax liabilities and promote financial growth. By understanding rebate options, following eligibility criteria, and staying informed, individuals can optimize their tax planning strategies. Leveraging rebates reduces tax burdens and supports savings, investments, and economic objectives.

Consulting with tax professionals and staying up-to-date on tax laws are crucial for maximizing benefits. Overall, income tax rebates play a vital role in enhancing financial well-being and achieving long-term financial goals.

FAQs on Income Tax Rebates

1

Can NRIs claim a rebate under Section 87A?

No, NRIs (Non-Resident Indians) are not eligible to claim a rebate under Section 87A. This rebate is specifically available to resident Indian taxpayers meeting the prescribed criteria.

2

Who is eligible to claim a rebate under Section 87A?

To be eligible for an income tax rebate under Section 87A, the taxpayer must be a resident Indian. Their net taxable income after deductions should not exceed ₹5 lakh in a particular financial year.

3

How can I claim a rebate under Section 87A?

To claim a rebate under Section 87A, ensure you meet the above eligibility criteria. If eligible, you can claim the income tax rebate while filing your income tax return by correctly reporting your income and deductions. The rebate amount will be adjusted against your tax liability.

4

Is surcharge included in calculating Rebate u/s 87A?

No, the income tax rebate under Section 87A is calculated before including a surcharge or health and education cess.

5

Can tax rebates be claimed every year?

Income tax rebates can be claimed annually if the taxpayer meets the eligibility criteria specified under the relevant sections of the Income Tax Act for that particular financial year.

6

How do I claim a rebate on donating to an organization registered under section 80G?

To claim an income tax rebate on a donation made to an organization registered under section 80G, ensure that you obtain a donation receipt from the organization. You can claim the rebate while filing your income tax return by providing details of the donation made, including the name and PAN of the recipient organization.

7

What is the procedure for an NRI to claim a tax rebate?

NRIs cannot claim an income tax rebate under Section 87A. However, NRIs may be eligible for other deductions and exemptions as per the provisions of the Income Tax Act applicable to them.

8

How to claim rebate u/s 87A while filing my ITR?

While filing your income tax return (ITR) on any platform, ensure you correctly report your income and deductions. If you meet the eligibility criteria for the rebate under Section 87A, the platform will automatically calculate the income tax rebate amount and adjust it against your tax liability.

9

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

Yes, taxpayers can claim an income tax rebate on the principal repayment of a housing loan under section 80C of the Income Tax Act, subject to specified conditions and limits.

10

What is the maximum deduction limit under Section 24 for self-occupied property?

For a self-occupied property, the maximum deduction allowed under Section 24 of the Income Tax Act for interest paid on a housing loan is ₹2 lakh per financial year.

11

What is the income tax rebate for a salaried person?

The income tax rebate for salaried individuals depends on various factors such as their total income, deductions claimed, and eligibility for specific rebates under the Income Tax Act. One common income tax rebate available is under Section 87A for resident individuals with net taxable income not exceeding ₹5 lakh per financial year, up to a maximum limit of ₹12,500.

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