Income Tax Rebate

When an individual pays more than his/her tax liability he/she receives a refund on the paid amount which is known as tax rebate. The excess money is refunded at the end of the fiscal year. For claiming a tax refund one needs to file an tax return.

What is Tax Rebate?

Tax rebate is a refund on taxes when the tax liability is less than the taxes the individual has paid. Taxpayers usually get a refund on their income tax if they have paid more than what they owe. The tax refund money is given back at the end of the financial year.

In India, you can get a refund of the excess tax along with the interest. To claim the income tax refund one must file the income tax return within a specified period. Most often you get tax refunds as your income falls within the tax slab that gets modified every year as per the directions of the government.

How to get Tax Rebate?

In order to avail income tax rebates, you can approach your HR and he will do the exemption and deduct it at source. The rebates that can’t be deducted at source will have to be done while filling up the Income Tax Return Forms.

Eligibility to Claim Income Tax Rebate

Here are the eligibility criteria to claim income tax rebate under Section 87A of the Income Tax Act:
  • Must be a resident of India
  • Your overall income after taking deductions into consideration is less than Rs.5 lakh
  • The maximum amount of rebate that can be claimed is Rs.12,500. So if your total tax liability is less than Rs.12,500, the whole amount will be granted as rebate under Section 87A of the Income Tax Act.

The rebate claimed by an individual will be applied to his/her total tax liability before cess is added at 4%.

Here are a couple of examples to help you better understand how rebate is allowed under Section 87A of the Income Tax Act:

Let’s say that Mr. Vicky, a software developer working at a Fintech. His total income for FY 2019-20 was Rs.2.6 lakh, and his tax liability before adding cess was Rs.1,000. Under Section 87A of the Income Tax Act, Mr. Vicky can claim the whole amount (Rs.1,000) as rebate since he earns less than Rs.5 lakh p.a. and his tax liability is less than Rs.12,500. His tax liability effectively becomes nil.

For another example, let’s consider the case of Ms. Pooja, an interior designer who works with a private firm. Her annual income for FY 2019-20 was Rs.5.5 lakh, and her tax liability for the same financial year was Rs.12,900. Since Ms. Pooja earns more than Rs.5 lakh p.a., she will not be able to claim rebate. Her tax liability, therefore, will be Rs.12,900 + cess at 4%, which is Rs.12,900 + 516 = Rs.13,416.

Types of Tax Rebates:

Types of Tax Rebates Features and How to get the Tax Rebate
Section 80C
  • Section 80C is preferred by most of the taxpayers as it lowers the taxpayer's taxable income by Rs.1 lakh.
  • Individuals and Hindu Undivided Family are allowed for the following investments and expense that are exempt under Section 80C:
    • ELSS
    • NSC, PPF, SCSS
    • 5 year Bank FD that are tax saving or 5 year Post Office Term deposits
    • PF, voluntary and mandatory
    • Life insurance premium
    • Pension fund or annuity
    • Principal on home loan
    • Registration and stamp duty on home purchase
    • Children’s full time education’s Tuition fee
  • Maximum amount that can be deducted is Rs.1 lakh in a year.
  • PF is automatically deducted from your salary, so you must check before putting the ELSS and PPF under the *) deductions.
  • Make full use of the Section 80C tax rebate by making all the eligible investments on time.
Section 80D

If you are paying health insurance premium, you get exemptions under section 80D.

You can get tax deduction by submitting proof to the HR so they can adjust that amount while applying TDS on your salary.

If the HR is not deducting that amount at source, you can include it while you are filing your income tax returns.

Section 80EE

You can now avail tax rebate on the interest payment of loan.

The person eligible for the rebate are:

  • The loan is sanctioned by a financial institution or a housing finance company between 1st April 2013 and 31st March 2014.
  • The loan amount is Rs.25 lakh or less and cost of residential house is less than or is Rs.40 lakh.
  • The house brought through the home loan must be the only house that the taxpayer owns at the time of sanctioning the loan.

Maximum deductions allowed under this section is Rs.1 lakh that is paid towards the interest.

If you are paying Rs.75,000 interest in the financial year 2013-2014 and the tax rebate remaining Rs.25,000 can be claimed for the financial year 2014-2015.

You can either produce a proof of the interest payment made to your HR and get deduction on your salary at source or you can include it while filing your returns.

Section 80TTA

You can now avail tax rebate on interest on savings up to Rs.10,000 from 1st April 2013 under Section 80TTA provided the interest is lesser than the amount.

Individuals and Hindu Undivided Family who are earning interest on their savings account can claim tax exemption. The savings account can be held with a bank, post office and co-operative society.

The tax rebate claim can’t be made by savings account held by firms, association of person or body of individuals.

Section 80G

Taxpayer can also get tax exemptions on amount that he donated to certain charitable institutions and organisations established by the government under section 80G.

There are 4 classifications of deduction depending on the charitable organisation:

  • 100% deduction on donation to:
    • Prime Minister's National Relief Fund
    • National Children's Fund
    • The Africa (Public Contribution - India) Fund
    • Prime Minister's Armenia Earthquake Relief Fund 176
    • National Defence Fund
    • The National Foundation for Communal Harmony
    • Donations made to Zila Saksharta Samitis
    • The Chief Minister's Earthquake Relief Fund, Maharashtra
    • Approved university or educational institution of national eminence
    • The National Blood Transfusion Council or a State Blood Transfusion Council
    • The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund
  • 50% deduction on donation to:
    • Jawaharlal Nehru Memorial Fund
    • Prime Minister's Drought Relief Fund
    • Indira Gandhi Memorial Trust
    • The Rajiv Gandhi Foundation
  • 100% deduction subject to qualifying limit on donation to:
  • The government or local authority that promotes family planning.

  • 50% deduction subject to qualifying limit:
    • The government or local authority that promotes charitable purposes other than family planning.
    • Authority in India that engages in housing development, development of cities, towns and villages.
    • Corporations that promotes interests of Muslim, Christian, Buddhist, Sikh and Parsi Community.
    • Repair work of a notified mosque, church, gurudwara, temple, etc.

You will have to show the proof of the donation to your HR and have it deducted at source from your salary or you can also show it while filing your tax return.

Section 54

The profit you make when you sell your residential property is taxable. If you have held the property for more than 3 years, it will become long term capital gain and you can avail exemption.

To be eligible for an exemption, you must buy another residential property within 2 years or before 1 year of sale of the old property, or you must construct a residential property within 3 years from the sale of the old property.

There is no cap to the extent of the tax exemption. If the entire capital gain has been utilised, it can be exempted from tax.

Section 54EC

If the long term capital gain amount is invested in specified bonds, you can claim tax exemption.

Up to Rs.50 lakhs can be invested in NHAI and REC bonds to avail exemptions.

Section 24b

Otherwise known as Interest Tax Shield on home loan allows deductions on the interest amount on home loans.

Up to Rs.30,000 can be exempted if the borrowing is for house property bought, constructed, renewed, repaired or reconstructed before 1st April, 1999.

Up to Rs.1.5 lakhs is exempted if the borrowing is for property bought or constructed within 3 years from borrowing provided it is borrowed after 1st April, 1999.

Up to Rs.30,000 is exempted if home loan is taken for renewing, repairing or reconstructing the house provided the money is borrowed after 1st April, 1999.

Up to Rs.30,000 is exempted if house is constructed or bought after 3 years after borrowing the money provided the money is borrowed after 1st April, 1999.

Claim the deduction on home loan interest in the same year that the home loan interest is payable even if you don’t intend to pay all the interest in the same year.

While filing the ITR, put the deduction under the head income from house property.

Section 80CCG

It is otherwise called as Rajiv Gandhi Equity Savings Scheme. If any individual whose income is less than Rs.12 lakhs uses a demat account to buy notified shares, he can claim 50% deduction on the invested amount.

The person must be a new retail investor. Investment must be done in shares belonging to BSE 100, NSE 100, maharatnas, navratnas and miniratnas. Mutual funds and ETFs investing in the shares mentioned above are eligible for exemption. NRIs can not avail this tax benefit.

The maximum investment limit is capped at Rs.50,000.

The you can fill out the details in your ITR under section 80CCG or you can submit the details of the investment to the company HR and the tax will be deducted at your source on your salary.

Section 10(13A)

This is applicable to those who pay house rent allowance.

Rental receipt is to be submitted to the HR for every financial year.

The maximum amount limit is the least of actual HRA, actual rent less 10% of the salary or 40% of salary and 50% of salary in metros.

If the rent is less than 10% of your salary, then there won’t be any exemption.

If your HRA is lower than the house rent, then talk to your HR to make the HRA equal to the house rent and to increase your basic pay.

You will have to provide rental receipt to HR so that the HR can apply less TDS on your salary.

Section 80GGA

Salaried individuals making donations to institutions involved in scientific activities, rural development, conserving nature etc. can claim tax benefits.

Maximum deduction limit is 100% of the amount donated. However the deduction is not allowed on salary TDs, you will have to include it while you are filing your returns.

Section 24a

Income from house is treated as a separate income and it is deducted from tax.

You can get a flat 30% rebate on income from house.

Deduction for repairs and maintenance is not allowed. The rebate is not applicable for houses that are let out.

Section 10(5)

You can avail tax breaks on your travel allowance under Section 10(5).

Tax rebate can be claimed on the amount actually spent on travel costs.

The actual amount spent on travelling or the leave travel allowance, whichever is lower can be claimed for deductions.

Section 80DD

Amount spent on the well-being of the disabled dependents is exempt from tax.

You can claim a flat deduction of Rs.50,000 in a year. If the disability is 80% or more, the maximum limit is Rs.1 lakh.

You have to submit the prescribed certificate to the HR and he will get deduction in TDS on salary.

Section 80GGC

Donations made to the political parties can be claimed for tax exemption. This section is meant for non-corporate taxpayers.

The donations made must be a political party that is registered under the section 29A of the Representation of the People Act. Donations made in cash is not eligible for tax deduction.

100% of the donated amount can be claimed for deduction.

This deduction is not allowed in salary TDs. This has to be claimed while filing your tax return.

Section 80E

The entire amount that you pay as interest on your education loan can be claimed for exemption.

You will have to submit the interest payment bank statement to your HR and he will apply less TDS on your salary. This can also be claimed in your ITR form while claiming for your returns.

Section 80DDB

If you are undergoing any medical treatment for cancer, kidney failure, thalassaemia, etc. the amount spent on those treatments can be deducted.

Tax rebate is available for individuals and Hindu Undivided Families residing in India.

The actual expense or Rs.40,000, whichever is less can be claimed for tax deductions.

You will have to submit the required documents to your HR and he will apply less TDS on your salary. This can also be claimed in your ITR form while claiming for your returns.

Section 80GG

Those who don’t get tax exemption on the HRA of their salary can now get income tax rebate for the rent that the person pays under the section 80GG.

The least of the following can be claimed:

  • Rs.2,000 per month
  • 25% of the total income
  • Actual rent minus 10% of the total income

You can claim for the rebate while filing your income tax return forms.

Section 80U

Disabled persons residing in India can claim a flat deduction by producing a disability certificate.

The flat deduction that can be claimed in a year is Rs.50,000. If the disability is severe then the limit is Rs.1 lakh.

The deduction can be claimed while filing your income tax returns.

Section 54F

Capital gain earned from sale of property, shares, bonds, gold, etc. that is taxable can be claimed for deductions of the amount is used to invest to buy or to construct a residential property.

There is no limit. The entire capital gain can be exempted. You have to claim for deduction while filing your income tax return.

Section 10(10D)

Income received from an insurance policy is exempted from income tax. The benefits must be from endowment plans, whole-life plans, unit linked plans, and whose returns and bonuses are tax free.

There is no cap, any amount received is exempted from income tax as long as the conditions are met. You have to claim for deduction while filing your income tax return.

Section 80CCF

Investment made up to Rs.20,000 in certain infrastructure bonds are qualified for additional deductions.

Three long term infrastructure bonds that are eligible are:

LIC, Infrastructure Development and Finance Corporation and IFCI.

This additional discount has not been extended for the year 2012-2013. Individuals and HUFs can make investments in these bonds but cannot claim income tax exemption.

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