Income tax rebate is partial or full refund of your income tax.
Income tax rebate is different from income tax exemption.
In income tax exemption income is partially or fully exempted from tax.
But in income tax rebate, deduction/refund is given form the final income tax liability.
Section 87 of income tax act, 1961 provides for allowance of rebate.
As per section 87, rebate shall be allowed form the total income tax calculated.
At present Section 87A provides for rebate in case of individuals
For the financial year 2015-16 the amount of rebate was Rs. 2000 or 100% tax whichever is lower.
By Budget/finance Act 2016, for financial year 2016-17 the amount of rebate is Rs. 5000 or 100 % tax whichever is lower.
This rebate is only applicable to individuals whose total income does no exceeds Rs. 5 Lac.
Steps for income tax rebate calculation
- Find out the Gross total income (Sum of Five heads of income)
- Reduce deductions under section 80C to 80U
- The outcome will be called as “Total Income”
- Then calculate income tax on total income as per income tax slabs applicable for that financial year.
- Then reduce the rebate of Rs. 5000 (for F.Y 2016-17).
Note that you cannot claim the rebate in excess of your income tax liability.
For example, if your Total income is Rs. 4,10,000, then tax on same will be Rs. 16000.
You can claim rebate of Rs. 5000 from it and final liability will be Rs. 11,000/-
If your total income is Rs. 2,80,000, then tax on same will be Rs. 3000.
You can only claim rebate of Rs. 3000 out of Rs.5000.
Earlier section 88 was also providing for rebates but it moved to section 80C deductions.
The difference between deduction and rebate is that rebate is allowed from final tax liability, whereas the deduction is allowed from Gross total income.