What is Rebate in Income Tax?
A Rebate in Income Tax is a deduction from the total tax payable, not from your taxable income. It is the tax benefit offered to low to middle-income earners and is available only to resident individuals. Section 87A of the Income Tax Act, 1961, states the quantum of income tax rebate that can be availed by a taxpayer. The income tax rebate can be applied to the total tax before adding the health and education cess of 4%1.
Income Tax Rebate under Section 87A (FY 2025-26)
The income tax rebate depends on the income level and the tax regime selected. Have a look -
- Under the old regime, an income tax rebate of ₹12,500 is allowed for an income up to ₹5 lakhs1.
- In the Union Budget 2025-26, the government of India has increased the Income Tax Rebate under Section 87A for the financial year 2025-261.
- Income tax rebate of ₹60,000 is allowed under the new regime for an income up to ₹12 lakhs for the FY 2025-261.
Eligibility Criteria for Tax Rebate
Here are the income tax rebate eligibility criteria stated in Section 87A of the Income Tax Act, 19611:
- Available only to resident individuals.
- The rebate is available to individuals whose income does not exceed ₹5 lakhs under the old tax regime and ₹12 lakhs under the new regime.
- The Income tax rebate would be applied to the tax liability before cess @4%.
- The amount of rebate shall be lower than the limit specified under Section 87A or the total income tax payable (before cess).
- Income tax rebate under Section 87A cannot be adjusted against tax on long-term capital gains under Section 112A.
- From FY 2025-26, the rebate will not be applicable on special rates under income tax.
Types of income tax rebate
There are several income tax rebates under the Income Tax Act, 1961 to enable the tax payers to reduce their tax liability based on their investments, income and expenses. Common income tax rebate includes rebates on investments, health insurance premiums, contributions to charitable trusts, home loan and education loan interest, and interest earned on savings account, each of which is discussed in the table below:
Section 80C
| Some of the most well-known income tax rebates in the country come through Section 80C of the Income Tax Act. Here, you get to reduce your tax liability up to Rs. 1.5 lakhs. Individuals and HUFs are eligible for 80C if you invest in:- Life Insurance Premium
- Public Provident Fund (PPF)
- Statutory Provident Fund (SPF)
- Recognised Provident Fund (RPF)
- National Pension Schema (NPS)
- Senior Citizen Saving Scheme (SCSS)
- Sukanya Samridhi Yojana (SSY) etc,.
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Section 80D
| - Deductions under Section 80D are available for health insurance premiums, medical expenses incurred for senior citizens and preventive health check up
- It can be availed for premiums on health insurance policies paid for self, spouse, dependent children, and parents.
- The section also covers preventive health check-ups.
- Maximum deduction up to ₹1 lakh 2
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Section 24B
| Under Section 24B of the Income Tax Act, you can claim a rebate on the interest paid toward home loan repayments. This rebate is capped at Rs. 2 lakh per financial year from your gross income for a self-occupied home, as long as the construction or acquisition of the property is completed within five years, providing significant relief to homeowners.
Remember: Section 24B applies exclusively to home loans that are taken for residential properties.
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Section 80E
| An income tax rebate is also available for the interest on loans taken for higher education. This is the meaning of income tax rebate under Section 80E.
Note: The deduction for the total interest paid can be claimed over eight years( beginning from the year you start repaying the loan interest) or till the entire interest is paid, whichever is earlier .
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Section 80G
| To encourage and show support for charitable services, the government offers either 100% or 50% (with or without restriction) tax deductions. For instance, schemes like the National Defense Fund that have been set up by the Central Government, the Prime Minister’s National Relief Fund and funds that are set up by a state government for medical relief to the needy are eligible for a 100% deduction.
Note: Donations such as Prime Minister’s Drought Relief Fund qualify for a 50% deduction.3
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Section 80TTA
| Under Section 80TTA, individual or HUF can avail a tax rebate of up to Rs. 10,000 on the income/ interest that you earn on your savings deposits.1
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How to claim an income tax rebate?
The process to claim income tax rebate is very easy. Simply follow the following steps to claim income tax rebate and save on taxes:
Understand The Eligibility
Apart from the ones mentioned above, several other sections of the Income Tax Act,1961 offer income tax rebates. The deductions may be further divided into categories such as senior citizens, people with disabilities, etc.
Know your Taxable Income
Your taxable income is not just your salary; it also needs to include income from all other sources, such as any income from your business, capital gains, and interest earned. The net taxable income is determined by subtracting eligible exemptions from your total income.
Identify the section that you fall in
You would now have to analyses your exemptions and the sections to determine what type of rebates you are eligible for.
Complete the paperwork
The next important step in filing the claim is your documentation. Depending on the kind of rebate you are seeking, you will have to ensure you have all receipts, proofs, and certificates.
File the Income Tax Return
The last step is filing the claim correctly. Make sure you understand the new and old tax regimes so that you can decide which regime offers you the maximum benefits. Now, file the ITR online or physically, as you deem right.
What is the Difference Between a Tax Deduction and a Tax Rebate?
Both Tax Deduction and Tax Rebate are deductions which enables you to decrease your tax liability but they function differently and provide distinct implications on your tax calculation and liability. Here is the basic difference between tax deduction and tax rebate, detailed in a tabular form:
| Basis of differentiation | Tax Deduction | Tax Rebate |
|---|
Definition
| Tax deduction is the reduction in the total taxable income of the assesse.
| Tax rebate is the reduction in the final tax payable of the assess.
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Application
| It is available before tax is calculated
| It is available after the calculation of tax
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Section
| Governed by Sections such as Section 80C for investments, Section 80D for health insurance and 80G for donations of the Income Tax Act, 1961
| Governed by Section 87A of the Income Tax Act, 1961
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Effect
| Lowers the taxable income of the assesse, which indirectly decrease the tax payable
| Lower the amount of tax payable directly through deduction
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Eligibility
| Based on specific investments, donations or expenses.
| Based on income level and residency.
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Key Takeaways
- Income tax rebate is a direct deduction from the total tax liability, not from taxable income.
- Section 87A of the Income Tax Act, 1961 provides income tax rebate only to resident individuals.
- In the Union Budget 2025-26, the government of India has increased the income tax rebate under Section 87A for the financial year 2025-26 allowing ₹60,000 under the new regime for an income up to ₹12 lakhs.
- Income tax rebate can be applied to the total tax before adding a health and education
Conclusion
Understanding income tax rebates and how to make a claim correctly can be very helpful in making the most of the exemption allowed by the government. In case you need more help, reach out to a financial expert or a tax advisor who can help you manage your taxes.
FAQs
How Can I Avail a Tax Rebate?
You can avail an income tax rebate if you fulfil the prescribed eligibility criteria and your taxable income is below the specified threshold limit.
Can I Claim a Tax Rebate on a Housing Loan Under Section 80C?
Yes, Section 80C of the Income Tax Act, 1961 provides tax deductions for repayment of the principal amount on a home loan up to ₹1.5 lakhs per annum.3
What Is the Process to Claim a Tax Rebate While Filing ITR?
To claim a tax rebate while filing ITR, your income should be lower than the prescribed limit, and you should be a resident Indian. For FY 2024-25, ₹60,000 is allowed under the new regime for an income up to ₹12 lakhs1.
Is Surcharge Considered When Applying Rebate Under Section 87A?
No, the income tax rebate under Section 87A is applied before considering surcharge, only to the basic tax payable.
Are Tax Rebates Applicable Every Financial Year?
Yes, income tax rebates are applicable every financial year, and eligible individuals can claim applicable tax rebates for the sections they qualify for.
How Can I Claim a Tax Rebate on Donations Made Under Section 80G?
To claim an income tax rebate on donations under Section 80G, submit the donation receipt from the specified institutions mentioning the donee’s name, address, PAN, and donation amount while filing your income tax return.
Sources:
- https://cleartax.in/s/income-tax-rebate-us-87a
- https://cleartax.in/s/medical-insurance
- https://cleartax.in/s/home-loan-tax-benefits
