CHAPTER IX

REBATES AND RELIEFS A.—Rebates and reliefs

Rebate to be allowed in computing

155(1)

In computing income-tax on the total income of an assessee with which he is chargeable for any tax year, there shall be allowed from income-tax (as computed before allowing the deductions under this Chapter), subject to the provisions of section 156, the deductions specified therein.

155(2)

The deduction under section 156, shall not, in any case, exceed income-tax (as computed before allowing the deductions under this Chapter) on the total income of the assessee with which he is chargeable for any tax year.income-tax.

Explanation

Section Summary:

Section 155 of the Income Tax Act deals with rebates and reliefs available to taxpayers when computing their income tax liability. It specifies that certain deductions can be claimed from the total income tax calculated before applying these rebates. However, the total rebate cannot exceed the income tax liability computed before applying these deductions.

Key Changes:

1. Clarification on Rebate Limits: Section 155(2) explicitly states that the rebate or deduction allowed under Section 156 cannot exceed the total income tax liability computed before applying these deductions. This ensures that rebates do not result in a negative tax liability.
2. Alignment with Section 156: The section ties the rebate mechanism to Section 156, which specifies the types of deductions or reliefs available.

Practical Implications:

1. Taxpayers: Taxpayers can reduce their tax liability by claiming rebates under Section 156, but they must ensure that the total rebate does not exceed their pre-rebate tax liability.
2. Compliance: Taxpayers must accurately compute their total income tax liability before applying rebates to avoid errors in claiming deductions.
3. No Negative Tax Liability: Taxpayers cannot use rebates to reduce their tax liability below zero. This prevents misuse of rebates.

Critical Concepts:

1. Total Income Tax Liability: This refers to the tax calculated on the total income of the taxpayer before applying any rebates or deductions under this chapter.
2. Rebate/Deduction: A reduction in the tax liability allowed under Section 156, subject to the limit specified in Section 155(2).

Compliance Steps:

1. Compute Total Income Tax: Calculate the total income tax liability before applying any rebates under Section 156.
2. Apply Rebates: Apply the rebates or deductions specified under Section 156, ensuring that the total rebate does not exceed the pre-rebate tax liability.
3. File Accurate Returns: Ensure that the rebates claimed are accurately reflected in the income tax return.

Example:

• Scenario: A taxpayer has a total income of ₹10,00,000 and a pre-rebate tax liability of ₹1,00,000. They are eligible for a rebate of ₹30,000 under Section 156.
• Application: The taxpayer can claim the ₹30,000 rebate, reducing their tax liability to ₹70,000. However, if the rebate were ₹1,20,000, it would be capped at ₹1,00,000 (the pre-rebate tax liability), ensuring the tax liability does not go below zero.

This section ensures that rebates are applied fairly and within the limits of the taxpayer's actual tax liability.