Discuss in detail the rebate to be allowed in Computing Income Tax under Taxation Laws in India.

In India, the rebate allowed in computing income tax is provided under the provisions of the Income Tax Act, 1961. This rebate helps reduce the tax liability of eligible taxpayers, thereby providing some relief in the payment of taxes. The most common form of rebate is under Section 87A, but there are other forms as well. Below is a detailed discussion of the rebate provisions under Indian taxation laws.

1. Rebate under Section 87A

Section 87A of the Income Tax Act provides a rebate for individual taxpayers whose total income is below a certain threshold. The objective of this provision is to offer relief to lower-income earners.

Eligibility for Rebate under Section 87A:

  • The rebate under Section 87A is available only to individual taxpayers (both residents and non-residents) and Hindu Undivided Families (HUFs).
  • The total income of the taxpayer should be less than or equal to ₹5,00,000.
  • The rebate is allowed only if the taxpayer's total income falls within this limit and is directly deducted from the total tax payable.

Amount of Rebate:

  • The maximum rebate under Section 87A is ₹12,500 for individuals whose total income is less than or equal to ₹5,00,000.
  • This means that if the tax payable after calculating the income tax liability is less than ₹12,500, the taxpayer will get a full rebate.
  • If the tax payable is higher than ₹12,500, the rebate will be limited to ₹12,500.

Conditions:

  • The rebate is available only once for the entire income of the taxpayer.
  • It is important to note that the total income should be before applying the rebate and should not exceed ₹5,00,000.

Example:

  • If an individual has a total income of ₹4,50,000, the income tax before rebate would be calculated as per the tax slabs.
  • However, since the total income is less than ₹5,00,000, the taxpayer will be eligible for a rebate of ₹12,500, reducing the total tax liability.

2. Rebate under Section 89 – Relief in case of Arrears of Salary

Section 89 of the Income Tax Act provides relief to taxpayers in case they receive salary or pension arrears. This relief is applicable when an individual receives payments for past years in the current year, which leads to a higher tax liability.

Eligibility for Rebate under Section 89:

  • The taxpayer must have received arrears of salary or pension.
  • The taxpayer can request for a calculation of tax payable as if the arrears had been received in the year in which they were due, rather than the current year, to reduce the overall tax burden.

Calculation:

  • The relief under Section 89 is calculated by computing the difference in tax liability if the arrears had been spread over the years in which they were due, and then comparing it to the current year’s tax liability.
  • The rebate is available only to salaried individuals and pensioners.

3. Rebate under Section 80C to 80U (Deductions and Tax Benefits)

While Section 80C to 80U is technically not a rebate in the strict sense, they play a crucial role in reducing the taxable income of the taxpayer. These deductions and rebates are available for a wide range of investments, expenses, and savings, such as:

  • Section 80C: Deduction for investments in specified savings instruments, such as Life Insurance Premium, PPF, EPF, NSC, etc., up to ₹1,50,000.
  • Section 80D: Deduction for health insurance premiums, including premiums for family and parents.
  • Section 80E: Deduction for interest on loans taken for higher education.
  • Section 80G: Deduction for donations to charitable organizations.
  • Section 80U: Deduction for individuals with a disability.

Though these sections do not constitute rebates per se, the deductions reduce the taxable income, thus indirectly reducing the tax payable.

4. Rebate under Section 87A for Senior Citizens

A special rebate is available to senior citizens (those above the age of 60 but below 80) and very senior citizens (those above the age of 80) under Section 87A. The income threshold for these categories is similar, but senior citizens are generally provided higher deductions under other sections, such as 80D.

5. Rebate on Dividend Income

Section 10(34) provides tax exemptions or rebates on dividend income up to ₹10 lakh received from a domestic company. The dividend received is exempted from tax under certain conditions, and it does not form part of the income for the purpose of calculating the total tax liability.

6. Tax Credit under Section 115JD

Section 115JD allows for a tax credit to a non-resident taxpayer who pays taxes in another country. This credit helps in reducing the double taxation of income earned in India, where the taxpayer is also taxed in the country of residence.

Conclusion:

Rebates in Indian tax law serve as a vital means to offer relief to individual taxpayers, particularly those with lower income, senior citizens, and individuals receiving arrears or having special conditions. They are designed to reduce the tax burden on specific categories of taxpayers. The most common form of rebate is under Section 87A, where eligible individuals can get a direct reduction in their tax liability if their income is below the specified threshold.

It is important for taxpayers to be aware of these rebate provisions and plan their taxes accordingly to optimize their tax savings. As the tax regime evolves, so do the conditions and limits for these rebates, and taxpayers should stay updated on any amendments in the tax laws.

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