Income Tax 2025

Appearance

Rebate of income-tax in case of certain individuals. ​

156(1) ​

A resident individual assessee shall be entitled to a deduction of 100% of income-tax payable or twelve thousand five hundred rupees, whichever is less, from the income-tax (computed before allowing the deduction under this section) chargeable on the total income for any tax year if the total income does not exceed five lakh rupees.

156(2) ​

Where the total income of a resident individual assessee for any tax year is chargeable to tax under section 202(1), then from income-tax (computed before allowing the deduction under this section) following deductions shall be allowed, if—

  • (a) the income does not exceed twelve lakh rupees, 100% of the income-tax payable or sixty thousand rupees, whichever is less;
  • (b) the income exceeds twelve lakh rupees, the income-tax payable on the total income, reduced by total income which is in excess of twelve lakh rupees.

156(3) ​

The deduction under sub-section (2), shall not exceed income-tax payable as per the rates provided in section 202(1).

Explanation

Section Summary: ​

This section provides a tax rebate (deduction from the tax payable) for resident individual taxpayers whose total income falls below specified thresholds. It aims to reduce the tax burden on low- and middle-income individuals by offering a rebate on the income tax they owe.

Key Changes: ​

  1. Rebate Thresholds:

    • For individuals with total income up to ₹5 lakh, the rebate is 100% of the tax payable or ₹12,500, whichever is lower.
    • For individuals with income up to ₹12 lakh, the rebate is 100% of the tax payable or ₹60,000, whichever is lower.
    • For incomes exceeding ₹12 lakh, the rebate is reduced by the amount of income that exceeds ₹12 lakh.

  2. Applicability: The rebate is applicable only to resident individuals and is calculated before considering other deductions under this section.

Practical Implications: ​

  1. Low-Income Individuals: Taxpayers with income up to ₹5 lakh will effectively pay no tax if their tax liability is ₹12,500 or less.
  2. Middle-Income Individuals: Those with income up to ₹12 lakh can benefit from a rebate of up to ₹60,000, reducing their overall tax liability.
  3. High-Income Individuals: For incomes above ₹12 lakh, the rebate is reduced proportionally, limiting the benefit for higher earners.

Critical Concepts: ​

  1. Rebate vs. Deduction: A rebate directly reduces the tax payable, unlike a deduction, which reduces taxable income.
  2. Interaction with Section 202(1): The rebate is calculated based on the tax rates specified in Section 202(1), ensuring consistency with the applicable tax slabs.
  3. Resident Individual: Only individuals who qualify as residents under the Income Tax Act are eligible for this rebate.

Compliance Steps: ​

  1. Calculate Total Income: Determine your total income for the tax year.
  2. Compute Tax Liability: Calculate the tax payable using the rates under Section 202(1).
  3. Apply Rebate: Deduct the rebate amount as per the thresholds mentioned in this section.
  4. File Returns: Ensure the rebate is correctly reflected in your income tax return.

Examples: ​

  1. Example 1 (Income ≤ ₹5 lakh):

    • Total Income: ₹4.8 lakh
    • Tax Payable (before rebate): ₹12,000
    • Rebate: ₹12,000 (100% of tax payable, since it is less than ₹12,500)
    • Final Tax Payable: ₹0

  2. Example 2 (Income ≤ ₹12 lakh):

    • Total Income: ₹10 lakh
    • Tax Payable (before rebate): ₹75,000
    • Rebate: ₹60,000 (since ₹60,000 is less than ₹75,000)
    • Final Tax Payable: ₹15,000

  3. Example 3 (Income > ₹12 lakh):

    • Total Income: ₹13 lakh
    • Tax Payable (before rebate): ₹1,30,000
    • Excess Income: ₹1 lakh (₹13 lakh - ₹12 lakh)
    • Rebate: ₹1,30,000 - ₹1,00,000 = ₹30,000
    • Final Tax Payable: ₹1,00,000

This section simplifies tax relief for individuals with moderate incomes, ensuring they retain more of their earnings while maintaining compliance with tax laws.