Rebate in Income Tax (Ultimate Guide)

Income tax rebates or income tax deductions or income tax refunds?

An amendment in the Finance Act made every taxpayer curious above all three. If you are here, you are one of them! Don’t worry, we will satisfy your query about rebate in income tax with the best information straight from the Income Tax Department website. 

What Is Tax Rebate Simple Words

Rebate in simple words means, the amount of money given back to you when you have paid more than the required amount. So, if you receive back the extra money you gave away because of any misinformation.

The IT department of India, in its Finance act under section 87 A, made a provision to deal with such occurrences. As they were happening frequently while paying taxes or filing the ITR by the taxpayers.  

What Is Section 87 A – Income Tax Rebate?

Section 87 A of the Finance Act states that an individual is liable to a tax rebate whose total income is not exceeding INR 5,00,000. The total rebate an individual can claim under this section is INR12,500, or the amount of tax payable, whichever is less.

The education cess is added after the rebate under section 87 A is deducted.

Who Gets Tax Rebate?

There are some conditions to claim this rebate, which are mentioned below:

1. The taxpayer must be a resident of India.
2. The taxpayer should be an Individual and not HUF or a corporate entity.
3. The tax claim shouldn’t be made on account of loss to the government.
4. The total income must be less than or equal to INR 5,00,000 in the assessment financial year.
5. It is only allowed to Residents or residents but not ordinary residents whose Total Taxable Income is greater than zero. 
6. The amount at “Tax payable” should equal the amount of tax payable on total income.
7. Senior citizens of age less than 80 years can claim rebates under this section.
8. Senior citizens above 80 years can not claim tax rebates under this section.

How Rebate Is Calculated in Income Tax?

The tax rebate can be calculated as 

1. Get your gross total income for the financial year.
2. Deduct all the deductions under section 80 and other investments and tax saving schemes.
3.  Now, you have the net income for the financial year. If your total income is less than or equal to INR 5,00,000, claim the deduction under section 87 A in the ITR.

Let’s see an illustration of the same as shown in the Income-tax circular for the assessment year 2022-23:

The tax rebate given under section 87 A is nil for a gross pension of INR 5,00,000. It is INR 50,000 for a gross pension of INR 8,50,000, and It is INR 1,40,000 for a gross pension of INR 13,00,000.

What Is Rebate with Example?

Here is another example of rebate calculation in the case of an employee Below the age of 60 of a private company posted in Delhi and repaying a house building loan with a valid plan furnished to the Employer.

As You can see that the total deduction under section 80c for provident fund, LIP, NSC, repayment of HBA, and tuition fee is coming up to rupees 150000.

Now, after deducting it from the gross total taxable income of 627000 we get the total income which is 4,77,000. The income tax rebate as perception 87 will be Nil because the tax exemption limit is exhausted at INR 1,50,000.

Is Rebate a Deduction or Exemption?

A rebate is a form of deduction provision given to the individual resident taxpayer under section 87 A, whose financial income is less than equal to INR 5 lakhs. Other examples of deductions are section 80 C, which covers deductions for EPF, PPF, NPS, etc. 

Whereas, exemptions are the components of an individual’s income that are tax-free. Examples of tax exemptions are HRA, TA, DA, etc, as per the provisions given in Section 10 of the IT Act. 

What Is Rebate Percentage?

A rebate percentage is offered by a seller during a short-term sale as an exemption on the overall cost of the product. Generally, you can get a rebate when you buy items from a wholesale dealer. The wholesale dealer sells a set volume of the product for a set price, the price is lesser than the actual cost allocated when the product will be sold in less volume.  That reduced price is the rebate you get for buying a set volume. This type of rebate is called a flat rate rebate. The rebate percentage is the margin percentage you gain from the rebate.

Why Rebate Is Given?

Rebate is given to taxpayers when they have paid more taxes than they should have to the government. Also, it’s a way for the government to strengthen lower-income people. So, a lot of their salary doesn’t go away as tax. 

The rebate also allows the taxpayers to be free from the fear of paying extra taxes and not getting them back. As, through rebate under section 87 A, you can claim it in ITR and get a refund.

Is Tax Refund and Rebate the Same?

Yes, refund and rebate are the same in both cases you get back the extra money that you paid for any service or taxes. You get the tax refund/ REBATE by filing the ITR.

What Is Difference between Discount and Rebate?

A discount is a reduced-price offer that a buyer gets for buying a product. The reduced price offer or the discount has been already deducted from the manufacturing cost of the product. The sales tax is applied on the reduced/ discounted price, which the buyer pays.

The seller is at loss after giving a discount. Discounts are generally offered in retail stores.

Rebate is the cashback/refund the buyer gets for buying a product. The rebate is paid by the manufacturer and the seller is not at loss. The rebate received can be used by the buyer as cash or as a service.  

Rebates are mostly offered while buying vehicles. The customer can use the rebate amount as a downpayment, or as cash, whichever seems fit.

Thus, the buyer doesn’t receive any money back after buying a product at discount. Whereas, the amount is given back to the buyer to be used as part of the purchase or as cash when a rebate is made. 

Conclusion:

A rebate in Income Tax is given under section 87 A of the Finance Act. It can be claimed while filing ITR for the assessment year in which the financial income of the taxpayer is less than or equal to INR 5 lakhs. This rebate is only available to Indian resident taxpayers, aged below 80 years. Rebate allows the taxpayer to get back any extra tax payment they have done in a financial year.

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