What are Tax Rebates: Everything you need to know

Updated on: 1 Aug 2024

The Government of India allows you to avail rebate of tax to encourage savings and investment, especially if you belong to the middle-income group. It refers to a refund that you can get if you have paid more income tax than that you owe.

Understanding these rebates is crucial as they can help you reduce your total tax liability. To know the definition of a tax rebate, how you qualify for one and how to claim it, read on.

What are Tax Rebates?

It refers to a benefit that you can get to reduce your total tax liability. Several sections of the Income Tax Act of 1961 provide for rebates of tax available for specific investments and expenditures under the old tax regime.

Types of Tax Rebates

These offer a variety of options to reduce your tax burden and incentivise responsible financial decisions. The following are the rebates you can enjoy under different sections of the Income Tax Act of 1961-

Section 87A

It provides for a rebate of up to ₹25,000 on a total taxable income of up to ₹7 lakhs under the new tax regime. The old tax regime allows individuals to claim a relief of up to ₹12,500 with a total taxable income of up to ₹5 lakhs.

Section 80C

This provision allows a deduction of up to ₹1.5 lakhs for investments in specific financial instruments. These include the Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC) and more.

Section 80D

It allows you to enjoy tax relief on premiums paid for health insurance for yourself, your spouse or your parents.

Section 24(b)

It allows you to claim a deduction of up to ₹2 lakhs each financial year towards the payments made for interest on home loans.

Section 80E

You can get this rebate on the interest component of education loans for a maximum of 8 years.

Section 80G

You can claim this rebate for donations made to specified charitable organisations. However, these deductions are also subject to certain limits.

Also Read: Different Types of Assessment in Income Tax

Tax Rebate Under the New Tax Regime

The Indian tax system offers two options for filing your returns. The introduction of the new tax regime has provided a simplified structure. You have to forego 70 tax exemptions and deductions if you opt for this taxation regime. Check out the available tax rebate under the new tax regime-

Rebate of up to ₹25,000 under Section 87A if your total taxable income is up to ₹7 lakhs
Deductions on let-out properties under Section 24
A standard deduction of up to ₹75,000
Deduction under Section 80CCD (2)

How to Claim Tax Rebates

The Income Tax Act of 1961 allows you to get your rightful tax benefit. Follow these steps to claim a tax rebate-

Review Eligibility Criteria

Understand if you qualify for a tax rebate, which depends on factors like your residential status and total income.

Compute Taxable Income

Review the deductions that lower your taxable income and potentially increase your eligibility for certain rebates.

Identify Applicable Sections

Research the different rebate sections to find the one that best applies to your situation.

Gather Appropriate Documents

Each rebate section may require specific documents as proof of eligibility. Gathering these documents beforehand ensures a smooth filing process.

File Your Returns

File your ITR online or offline on the official website to receive applicable tax benefits.

Also Read: How To Claim Income Tax Refund Online For TDS

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FAQs on What are Tax Rebates

Explain tax rebate with an example?

It refers to a refund that you can get if you pay more tax than your liability. Check out a tax rebate example below-

Consider that you have invested in a fixed deposit
Upon withdrawal, your tax liability on the maturity is ₹10,000
Say that your bank deducts a TDS of ₹15,000; you will then qualify for a rebate of ₹5,000

How is the rebate calculated?

Follow these simple steps to compute tax relief-

Calculate your taxable income by deducting exemptions and deductions from your gross income
Identify the income heads that qualify for exemption from taxation
Compute the applicable tax slab rates to determine the tax payable on the amount of tax you owe
Claim tax rebates for expenses and investments under the relevant provisions of the Income Tax Act of 1961
Reduce the tax rebate amount from tax payable to get the final amount you owe as tax