The total income of an assessee is determined after deductions from the gross total income are made as discussed in the previous chapter. It is on this total income that the tax payable is computed at the rates in force. The Income Tax Act further provides for rebate from the tax payable as computed above, if certain investments or payments are made. Tax Rebate provided u/s 88 of the Act must be distinguished from deductions provided in Chapter VIA of the Act. While the latter reduces the gross total income, rebate is a reduction from the tax payable.
The Finance Act 2002 introduced some changes in the above which came into effect from A.Y. 2003-2004. The rate of tax rebate has been kept at 20% in case the gross total income, before giving effect to the deductions under chapter VIA, is below Rs. 1.5 lacs while the rate would be 15% if gross total income is higher than Rs. 1.5 lacs but lower than Rs. 5 lacs. On the other hand, if the gross total income exceeds Rs. 5 lacs, no rebate under this chapter would be available. It has also been provided that an individual whose income under the head ‘Salaries’ is below Rs. 1 lakh during the previous year and constitutes at least 90% of his gross total income, shall be entitled to rebate @ 30% on the investments/ payments specified in Section 88. The maximum amount of investment qualifying for rebate u/s 88 has been enhanced to Rs.70,000, however, additional rebate on investment upto Rs. 30,000 is available in respect of subscription to specified infrastructure equity share/debentures.
Investment qualifying for rebate u/s 88 must be out of income chargeable to tax in the relevant previous year. The above requirement has, however, been deleted by the Finance Act 2002 w.e.f. A.Y. 2003-2004.
With effect from assessment year 2001-2002 onwards a new section 88C has been inserted. It provides that in case of assessee being a woman resident in India and below 65 years of age, income tax rebate of an amount of Rs. 5,000 or 100% of tax, whichever is less, shall be available. The above rebate is to be allowed from the amount of Income Tax computed before allowing for tax rebate u/s 88 in respect of various investments expenditures, important among which are discussed below.
- Life Insurance Premium – For individual, policy must be in self or spouse’s or any child’s name. For HUF, it may be on life of any member of HUF.
- Sum paid under contract for deferred annuity – For individual, on life of self, spouse or any child.
- Sum deducted from salary payable to Govt. Servant for securing deferred annuity for self, spouse or children – Payment limited to 20% of salary.
- Contribution made under Employee’s Provident Fund Scheme.
- Contribution to PPF – For individual, can be in the name of self/spouse, any child & for HUF, it can be in the name of any member of the family.
- Contribution by employee to a Recognised Provident Fund.
- Sum deposited in 10 year/ 15year account of Post Office Savings Bank
- Subscription to any notified securities/notified deposits scheme.
- Subscription to any notified savings certificates, such as NSC VIII issue.
- Contribution to Unit Linked Insurance Plan of LIC Mutual Fund. such as Dhanrakhsa 1989.
- Contribution to notified deposit scheme/Pension fund set up by the National Housing Bank.
- Certain payment made by way of instalment or part payment of loan taken for purchase/ construction of residential house property. Qualifying amount limited to Rs.10,000. The limit has been raised to Rs.20,000 w.e.f. assessment year 2001-2002.
- Contribution to notified annuity Plan of LIC(e.g. Jeevan Dhara) or Units of UTI/notified Mutual Fund. If in respect of such contribution, deduction u/s 80CCC has been availed of, rebate u/s 88 would not be allowable.
- Subscription to units of a Mutual Fund notified u/s 10(23D)
- Subscription to deposit scheme of a Public Sector Company/ Authorised Authority providing long term house financing.
- Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions. In respect of it, a higher limit of qualifying investment of Rs.70,000 (Rs.80,000 w.e.f. A.Y. 2001-2002) is available as against Rs.60,000 in case of other investments.
- Tuition fees paid at the time of admission or otherwise to any school (w.e.f. 01.04.2004) , college, university or other educational institution situated within India for the purpose of full time education of any two children. The qualifying amount limited to Rs.12,000/- in respect of each child.
No tax rebate u/s 88 shall be available from A.Y.2006-07 onwards. Similarly, sections 88B and 88C providing special rebates to senior citizens and ladies, stand omitted w.e.f. 01.04.2006.