Rebates and Reliefs of Income Tax Law

Rebates and Reliefs

Chapter 8 of Income Tax Law       

Through this article, you can go through comprehensive knowledge and facts about provisions related to Rebates and Reliefs allowed  under the Act (Chapter 8 of Income Tax Act)

What is Rebate? (Section 87)

• In simple terms, rebate is deduction from income tax payable
• Here Income Tax Payable = Tax Payable + Cess + Surcharge + Interest (if any) – TDS
• Note that: Rebate is deduction from tax payable and not from taxable income
• Aggregate amount of Rebate shall not exceed Income Tax Payable in any case

Rebates for Individuals (Section 87A)

• Resident Individual whose total income does not exceed ₹5 lakhs is eligible for this rebate
• Lower of the following shall be allowed as deduction from Income Tax Payable
  • 100% of Income Tax Payable
  • ₹12,500

Rebate on Life Insurance Premium or Contribution to provident fund (Section 88)

• Indivdual and HUF with Gross Total Income (before 6A Deductions) between ₹50,001 to ₹1,50,000 will get lower of following rebates:
  • 20% of aggregate of sums paid or deposited towards Life insurance or Provident Funds
  • ₹70,000
• Indivdual and HUF with Gross Total Income (before 6A Deductions) between ₹1,50,001 to ₹5,00,000 will get lower of following rebates:
  • 15% of aggregate of sums paid or deposited towards Life insurance or Provident Funds
  • ₹70,000
• No rebate available for Individual and HUF with GTI of more than ₹5,00,000
• Individual having salary of less than ₹1,00,000 (which is more than 90% of Gross Total Income) will get lower of following rebates:
  • 30% of aggregate of sums paid or deposited towards Life insurance or Provident Funds
  • ₹70,000
• The limit of ₹70,000 increases to ₹1,00,000 in respect of investments in certain specified equity shares, mutual funds and debentures

Rebate in respect of Securities Transaction Tax (Section 88E)

• Income arising from Taxable Security Transactions chargeable under head PGBP shall be entitled to deduction as follows:
  • 100% of STT paid in respect of taxable security transactions entered during PY
• No deductions under this section shall be allowed from 01.04.2009

Relief of Salary (Section 89)

• An Assessee will be entitled to relief in following situations:
  • Salary being received in advance
  • Salary being received in arrears
  • Gratuity Received (where service of less than 5 years is rendered)
  • Commuted Pension Received
• Relief Rules: (Rule 21A)
  • The relief is to be given in the assessment in which the extra payment by way of arrears, advance, etc., is taxed.
  • Basically, the relief is arithmetical.
  • It involves finding out of two rates of tax.
  • The first is the rate of tax applicable to the total income including the extra amount in the year of receipt.
  • The second is finding out the rate by adding the arrears to the total income of the years to which they relate.
  • For this purpose the assessee should be asked for a true and authentic statement of the total income of the earlier years to which the arrears pertain, there is no warrant for issuing a notice under section 148 or calling for returns of income of the earlier years.
• No relief is covered under this section if any amount received or receivable pertains to Voluntary Retirement or Termination of his services.

Taxation on Income from Retirement Benefits Account Maintained in a notified Country (Section 89A)

• Where a specified person has income accrued in specified account, such income shall be taxed by way of applying Double Taxation Avoidance Agreements (DTAA), if any (See rule 21AAA for detailed procedure of the taxability under section 89A)
• Here notified country means country notified by Central Government
• Specified account means account maintained in a notified country where income is not taxable on accrual basis, but on payment basis
• Specified person means person operating special account in that notified country while he being non- resident in India and resident in that country