“PROVISIONS RELATING TO REBATES

UNDER THE INCOME TAX ACT,1961”

A project submitted to

Army Institute of Law, Mohali

By
(AYUSHI JARYAL Roll No. – 1827)

Under the guidance of Dr. Pooja Jaiswal

LAW OF TAXATION
In partial fulfillment of the requirements for the award of
Degree BA.LLB
Punjabi University, Patiala (Punjab)
Feb–Aug 2021

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 ACKNOWLEDGEMENT

This project would not have been possible without the kind support and help of my

teacher Dr. Pooja Jaiswal. I would like to extend my sincere gratitude to her for giving me the

golden opportunity to prepare the project on “PROVISIONS RELATING TO REBATES

UNDER THE INCOME TAX ACT,1961” which is not only enriching and interesting but

also a means to enhancing my patience and hard work. I am also highly indebted to Army

Institute of Law, Mohali and the library staff for their guidance and constant supervision as

well as for providing necessary information regarding the project & also for their supporting

me in completing the project.

I would also like to express my gratitude towards my parents and friends for their kind

cooperation and encouragement which helped me in completion of the project in the limited

time frame.

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 INTRODUCTION

Income tax as a concept has been present in India for many years, but James Wilson who
became India’s first finance (British) member introduced the first modern Income Tax Act in
1860. “It was only for the good of his subjects that he collected taxes from them, just as the
Sun draws moisture from the Earth to give it back a thousand fold,” wrote Kalidas in his epic
poem Raghuvansh.1

Income tax in India is a tax you pay to the government based on your income (and profit, in
the case of companies). The government uses this tax money for various purposes including
public services, infrastructure development, defence spending and subsidies among other
options. If you earn income beyond a certain limit, it is mandatory to pay income tax every
year.

INCOME TAX ACT, 1961

The Income Tax Act is a comprehensive statute that focuses on the different rules and
regulations that govern taxation in the country. It provides for levying, administering,
collecting and recovering income tax for the Indian government. It was enacted in 1961.
The Income Tax Act contains a total of 23 chapters and 298 sections according to the official
website of the Income Tax Department of India2. These different sections deal with various
aspects of taxation in India. The various heads for which you have to pay income tax include:
1. Salary
2. Income from house property
3. Capital gains
4. Profit and gains from business or profession
5. Income from other sources
Every year, the Indian government presents a finance budget during the month of February.
The budget brings in various amendments to the Income Tax Act. This includes changes in
tax slabs wherever applicable. For example, the Finance Minister announced that the tax rate
for individuals in the lowest tax bracket of Rs. 2.5 lakh to 5 lakh would be cut from 10% to
5% in FY2017. Similarly, tax on Long Term Capital Gains (LTCG) was re-introduced during
the FY2018 budget. As a result, all gains greater than Rs. 1 lakh from shares and equity
mutual funds held longer than one year is now eligible for LTCG tax at 10%.
The most recent budget presented by the current Finance Minister Nirmala Sitharaman
included the introduction of a new optional system of taxation that comes with reduced
income tax rates. These new rates shall be available as an option from the financial year
2020-21.

1
https://www.aegonlife.com/insurance-investment-knowledge/income-tax-act-1961/#_ftn1
2
https://incometaxindia.gov.in/

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Such amendments become a part of the Income Tax Act from the following financial year
(beginning from 1st April) following the approval from the President of India.

INCOME TAX SLABS

The income tax you pay depends on your annual income. Budget 2020 introduced new
reduced tax rates that shall come into effect from the year 2020-21. The tax slab rates
according to the new system are categorized in the following way:

Income tax slabs Income tax rates

Less than Rs. 5 lakhs Exempt

Between Rs. 5 lakhs and 7.5 lakhs 10%

Between Rs. 7.5 lakhs and 10 lakhs 15%

Between Rs. 10 lakhs and 12.5 lakhs 20%

Between Rs. 12.5 lakhs and 15 lakhs 25%

Above Rs. 15 lakhs 30%

From FY 2020-21, taxpayers shall have the option to choose between the existing taxation
system and the new regime. The new system has revised the income slabs and reduced the
rates thereon. Another major change in the new scheme is that many of the deductions and
exemptions generally applicable in the old tax regime are no longer valid. Nearly 70 of the
100 or so existing deductions and exemptions are to be scrapped in the new regime.
Taxpayers can compare their tax liabilities under the two systems and opt for the one that’s
most beneficial to them.
For the financial year 2019-20, taxpayers shall continue to be governed by the old tax system,
under which all existing deductions can be claimed.

INCOME TAX DEDUCTIONS

According to the Income Tax Act 1961, you can claim deductions under the following
sections:

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 1. Section 80C to 80: Under Section 80C3, 80CCC4 & 80CCD5 of the Income Tax Act
1961, you can reduce your taxable income by 1,50,000
2. Section 80CCD: Section 80CCD of the Income Tax Act, 1961 focuses on income tax
deductions that individual income tax assesses are eligible to avail on contributions
made towards the New Pension Scheme (NPS) and Atal Pension Yojana (APY)
3. Section 80D: Under section 80D6, you can claim income tax deduction for medical
expenses and health insurance premiums
4. Section 80DD: Tax deduction under Section 80DD7 of the Income Tax Act can be
claimed by individuals who are residents of India and HUFs for the medical treatment
of a dependant with disability(ies) or differently abled
5. Section 80DDB: Tax deductions under section 80DDB8 of Income Tax Act 1961 can
be claimed for medical expenses incurred for medical treatment of specific illnesses
6. Section 80TTA: Section 80TTA9 provides a deduction of Rs 10,000 on interest
income. This deduction is available to an Individual and HUF.
7. Section 80U: Under Section 80U10, physically disabled persons can claim deductions
up to Rs.1,00,000.

INCOME TAX REBATE UNDER SECTION 87A11

A rebate under section 87A is one of the income tax provisions that help taxpayers reduce
their income tax liability. You can claim an income tax rebate under section 87A if your total
income does not exceed Rs 5 lakh in a financial year. Your income tax liability becomes nil
after claiming the rebate under section 87A.
The Income Tax Act, which was brought into force in 1961, is the statute under which all
matters relating to taxation in India are listed. It includes levy, administration, collection as
well as recovery of income tax. Section 87A, one of the several sections of the Income Tax

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Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to
certain equity shares or debentures, etc.
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Deduction in respect of contribution to certain pension funds.
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Deduction in respect of contribution to pension scheme of Central Government.
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Deduction in respect of health insurance premia.
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Deduction in respect of maintenance including medical treatment of a dependant who is a person with
disability
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Deduction in respect of medical treatment, etc.
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Deduction in respect of interest on deposits in savings account.
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Deduction in case of a person with disability.
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Rebate of income-tax in case of certain individuals.
87A. An assessee, being an individual resident in India, whose total income does not exceed  [five hundred
thousand] rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing
the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of
an amount equal to hundred per cent of such income-tax or an amount of  [twelve thousand and five hundred]
rupees, whichever is less.

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Act, was inserted by the Finance Act, 2013, to provide tax relief to individual taxpayers.
Rebate under Section 87A provides for a lower tax payment from individuals earning below a
specified limit.
According to the Income Tax Department, “An individual who is resident in India and whose
total income does not exceed Rs. 3,50,000 is entitled to claim rebate under section 87A.
Rebate under section 87A is available in the form of deduction from the tax liability. Rebate
under section 87A will be lower of 100% of income-tax liability or Rs. 2,500. In other words,
if the tax liability exceeds Rs. 2,500, rebate will be available to the extent of Rs. 2,500 only
and no rebate will be available if the total income (i.e. taxable income) exceeds Rs.
3,50,000.”
The following are some of the noteworthy points of Section 87A of the Income Tax Act,
1961:
 The amount of deduction that can be claimed under this section is either 100% of the
income tax liability or Rs. 2,500 (whichever is lower).
 The rebate is applicable to total tax prior to adding the educational cess of 4%.
 Only individuals are eligible to avail rebate under this section. Companies, firms or
Hindu Undivided Family cannot claim this rebate.
 Rebate benefit is available to senior citizens (individuals above the age of 60 years
and below 80 years)
 Super senior citizens (individuals above the age of 80 years) are not eligible for a
rebate under Section 87A.
 Only Indian residents are permitted to claim this rebate, NRIs are not allowed rebate
under Section 87A.

Claiming Refund under Section 87A of the Income Tax Act, 1961
A rebate under this section is allowed to taxpayers - being a resident individual - whose net
total income is below Rs. 3,50,000. The rebate available is up to Rs. 2,500 or 100% of
the income tax, whichever is lesser. The taxpayer can claim the rebate at the time of filing tax
returns, prior to including education cess, secondary and higher education cess.

Eligibility Criteria to get Benefits under Section 87A

An individual is eligible to claim a rebate under Section 87A provided he or she meets the
following conditions:
1. The individual must be an Indian resident.
2. His or her total income, less deductions under Section 80, has to be below or equal to
Rs. 3,50,000.

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