Rebate, Relief and Total Income Computation
Rebate and marginal relief
- Section 87A under the new regime: rebate up to Rs.25,000 where total income does not exceed Rs.7,00,000. It is not allowed against tax on 112A long-term gains.
- Old regime: rebate up to Rs.12,500 where total income does not exceed Rs.5,00,000.
- Marginal relief near Rs.7,00,000: tax cannot exceed the income above Rs.7,00,000.
Relief and foreign tax credit
- Section 89 relief for salary arrears or advance salary, claimed in Form 10E.
- Sections 90, 90A and 91 give credit for foreign tax paid, with Rule 128 documentation.
Surcharge, cess and interest
- Surcharge rates are 10%, 15%, 25% and 37%; 37% applies only under the old regime and the new regime is capped at 25%.
- Surcharge on dividend and on 111A/112A income is capped at 15%.
- Health and education cess is 4% on tax plus surcharge.
- Interest: 234A for default in filing, 234B for shortfall in advance tax, 234C for instalment shortfalls, each at 1% per month. Late fee u/s 234F is Rs.5,000, or Rs.1,000 where total income is up to Rs.5,00,000.
Worked example
New regime, total income Rs.7,10,000. Normal tax is Rs.15,000 plus 10% of Rs.1,10,000, that is Rs.26,000. Rebate is nil because income exceeds Rs.7,00,000. Marginal relief limits tax to the excess over Rs.7,00,000, so tax is Rs.10,000; with 4% cess the liability is Rs.10,400.
Traps
- Claiming 87A rebate against tax on 112A gains.
- Forgetting marginal relief, which turns a small income increase into a large tax increase.
- Using the 37% surcharge under the new regime.
- Applying 234C interest where the shortfall arises from income received after the instalment date and tax is paid in time.