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Income Tax Rebate - A Detailed Guide

  • 3 min read

  • Highlights

  • Income tax rebates helps lower your net tax liability

  • Section 87A provides an IT rebate of up to Rs.12,500

  • You can get a refund by filing and verifying your IT Returns

  • Home Loans reduce tax liability through Sections 80C and 24B

Income tax rebate is a word that is employed in various senses, all of which signify a reduction in tax liability. On the one hand, the term has gained popularity after the recent provisions of Section 87A of the Income Tax act in India, which allow for a tax sop of up to Rs.12,500 for persons with gross taxable incomes not exceeding Rs.5 lakh. On the other hand, persons keeping tabs on their income tax refund status, often refer to the term rebate as a refund. Likewise, rebates also signify the deductions available through Sections such as 80C, 80D and 24B.

To help you get a grip on the matter, here’s everything that you need to know about an income tax rebate.

What is Income Tax Rebate and How does It Work?

In the most generic sense, a tax rebate is a refund that you are eligible for in case the taxes you pay exceed your liability. For instance, in case your tax liability amounts to Rs.30,000 but your FD issuer pays the Government on your behalf a TDS amounting to Rs.40,000 then you qualify for a rebate or refund.

Provisions for a tax rebate are specified Section 237 of the IT Act. The refund is initiated by the Income Tax Department and you can get information about the quantum of refund you qualify for at the time of carrying out income tax filing.

Tax Rebate under Section 87A

Section 87A of the Income Tax Act provides a rebate that helps you lower your income tax payment. For the financial year 2019-20 or assessment year 2020-21, you, as a resident individual, can obtain a rebate of up to Rs.12,500 if your gross taxable income, post deductions, is not in excess of Rs.5 lakh. So, incase income tax payment amounts to Rs.10,000, Section 87A provides you a rebate of that amount. This rebate is given before the addition of the 4% cess.

The tax relief made available through Section 87A can be revised from time to time and so, its good to know what is the rebate in Income Tax offered for a particular financial year.

How to Get a Tax Rebate in Income Tax?

In the event that you are a resident Indian with a gross taxable income less than Rs.5 lakh, you stand to qualify for a rebate through Section 87A. Similarly, in case of a mismatch in income tax payment and tax liability, you can obtain an income tax rebate or refund by filing your Income Tax Returns and verifying them. You can then check your income tax refund status online.

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How is Tax Rebate Calculated?

If you’re wondering what is the rebate in income tax payments you are eligible for this financial year, consider these factors.

Your first step would be to evaluate your gross taxable income by noting the deductions or rebates you can claim. For instance, Section 80C offers you a deduction of up to Rs.1.5 lakh, which you can use to lower your taxable income tremendously. In case your gross taxable income does not exceed Rs.5 lakh, Section 87A’s rebate can be applied and you can obtain a tax sop of up to Rs.12,500. However, in case your gross taxable income exceeds Rs.5 lakh, you will be taxed at the income tax slab rates applicable for the financial year. Now, in case your income tax payment exceeds your liability, you are eligible for an income tax refund.

Consider this table to understand better:

Particulars (in Rs.)

Person 1

Person 2

Annual salary

6,50,000

10,00,000

Section 80C rebate/ deduction

1,50,000

1,50,000

Gross Taxable Income (GTI)

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

Key Points of Income Tax Rebate

  • A tax rebate can be claimed only by a resident Indian citizen

  • The maximum tax rebate you can claim under Section 87A at present is Rs.12,500

  • If you do not qualify under Section 87A, you will be taxed according to the income tax slab you come under

  • If you’re looking for an income tax refund/rebate, then all you need to do is file your Income Tax Returns and verify them

  • Sections such as 80C, 80D, 80EE also provide rebates and these deductions help lower your taxable income

For instance, when you take a housing loan, such as the Bajaj Finserv Home Loan, you can get an annual rebate/ deduction of up to Rs.2 lakh and Rs.1.5 lakh through Sections 24B and 80C of the IT Act respectively. This Home Loan also offers you financing of up to Rs.3.5 crore and lets you benefit from features such as a 30-year flexible tenor, zero charges on part-prepayments and PMAY subsides.

Now that you know what is and how to get rebate in Income Tax, start planning your taxes to come up trumps at the end of the year. Similarly, you can check your pre-approved offer to obtain instant access to a financial solution you can use to fulfil your housing dreams as well as lower your gross taxable income for the year.

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