Tax Deduction & Tax Rebate


Tax Deduction: After taking into account exempt incomes, deductions are considered. Deductions bring down the taxable income. These can be investments allowed or expenses incurred on specified avenues under different sections of the Income-tax Act, 1961. For instance, an assessee can claim deduction of up to Rs.1.5 lakh under section 80C for investments made in instruments such as Equity-linked savings schemes, Public Provident Fund, and National Savings Certificates. There are various other sections such as 80D, 80E, 80U and 80TTA, which also qualify for deduction. Limit and avenues differ in each section.

Tax RebateThis is the amount of tax that an assessee is not liable to pay. Take the rebate under section 87A, for instance. As per this section, if an assessee has an income below Rs.3.5 lakh in a financial year, she is allowed to claim Rs.2,500 as tax rebate. Say, an assessee has a taxable income of Rs.3.5 lakh for the financial year 2017-18; her tax liability would be Rs.5,000 excluding education cess (income up to Rs.2.5 lakh is exempt from tax for the assessment year 2018-19). However, as her income is less than Rs.3.5 lakh, she can claim a rebate of Rs.2,500, making her liable for a tax of Rs.2,500, excluding cess.


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