Rebates, Reliefs and Total Income Computation
What the exam tests
This domain tests the final computation sequence: gross total income, Chapter VI-A deductions, tax at slab or special rates, rebate under Section 87A, surcharge, health and education cess, and reliefs under Sections 89, 90, 90A and 91. The exam expects a step-wise computation and awareness of the old and new regimes.
Core rules
- Total income: Gross total income minus eligible Chapter VI-A deductions, subject to the statutory caps.
- Section 87A rebate: Under the old regime, up to ₹12,500 if total income does not exceed ₹5,00,000. Under the default new regime, up to ₹25,000 if total income does not exceed ₹7,00,000.
- Marginal relief: Near the rebate threshold, tax may be limited so that it does not exceed the income above the threshold, subject to the prescribed mechanism.
- Surcharge: Applied at prescribed rates when total income exceeds the relevant thresholds, subject to marginal relief.
- Cess: Health and education cess at 4% of tax plus surcharge.
- Reliefs: Section 89 for salary arrears or advance salary; Sections 90, 90A and 91 for double taxation relief under a treaty or unilateral relief.
Worked example
Under the new regime, total income is ₹7,10,000. Tax at slab rates is ₹20,000 on ₹3,00,001 to ₹7,00,000 plus ₹1,000 on the next ₹10,000, totalling ₹21,000. The 87A rebate is not available because income exceeds ₹7,00,000. Marginal relief limits the tax to the income above ₹7,00,000, that is ₹10,000, before cess. Cess at 4% is then added.
Traps
Do not apply the 87A rebate after checking only gross total income; use total income. The old-regime and new-regime thresholds differ. Surcharge is not the same as cess. Relief under Section 89 is not automatic and requires the prescribed computation. Treaty relief requires the required documents, including a tax residency certificate.