Deductions, Rebate and Relief: formula sheet

Key formulas

Total income

Total income = Gross total income − Deductions allowed under the deductions Chapter

Tax is computed on total income. Check each deduction's own conditions first.

Meaning of gross total income

GTI = total income computed as per the Act, before deduction under the Chapter (s.122(10))

It comes after set off and carry forward of losses and after clubbing.

Overall ceiling

Aggregate of deductions ≤ Gross total income (s.122(2))

Apply it to the sum of all deductions claimed, after each one is limited by its own section.

Part C profit-linked deduction limit

Deduction ≤ profits and gains of the undertaking, unit, enterprise or eligible business (s.122(4)(b))

The same profits cannot be deducted again under another provision for that tax year.

Return condition for Part C

Return furnished by the due date under s.263(1) AND deduction claimed in that return

If either is missed, the Part C deduction is not allowed (s.122(5)).

Transfer at market value

Profits recomputed as if transfer was at market value (s.122(6))

Applies if the recorded price for goods or services moved between the eligible unit and another business differs from market value.

Deduction base for specified income

Income of that nature as computed before any Chapter deduction (s.122(9))

Use this figure as the income derived when computing a Part C deduction.

Life insurance premium qualifying limit (policy issued on or before 31 March 2012)

Qualifying premium = lower of actual premium and 20% × actual capital sum assured

Applies to policies other than a deferred annuity contract.

Life insurance premium qualifying limit (policy issued on or after 1 April 2012)

Qualifying premium = lower of actual premium and 10% × actual capital sum assured

Policy issued on or after 1 April 2013 covering a person with disability or severe disability, or a specified disease or ailment, gets 15% instead.

Actual capital sum assured

Minimum amount assured under the policy on happening of the insured event at any time during the term of the policy

Ignore premiums agreed to be returned and bonus or other benefits above the sum actually assured.

Government salary deferred annuity

Deduction limited to 20% of salary

Applies to sums deducted from salary paid by or on behalf of the Government.

Pension scheme contribution by an individual

Employee: 10% of salary (including dearness allowance, if terms of employment so provide; excluding other allowances and perquisites). Any other individual: 20% of gross total income

Applies to a pension scheme notified by the Central Government.

Tuition fees

Fees only, for full-time education of any two children, at an institution in India

Development fees, donations and similar payments are excluded.

Life insurance clawback

Single premium policy: terminated within two years of commencement. Other policy: terminated or lapsed before premiums are paid for two years

Deductions allowed earlier become income of the year in which the condition is met.

ULIP clawback

Participation ended before contributions are paid for five years

Covers the Unit-Linked Insurance Plan, 1971 and the LIC Mutual Fund unit-linked plan.

House property clawback

Transfer before five years from the end of the tax year in which possession was obtained, or refund of the sum claimed

The aggregate of deductions actually allowed earlier is deemed income of the year of transfer or refund.

Shares or debentures clawback

Sale or transfer within three years of acquisition

Acquisition date is the date the name is entered in the register of members or debenture-holders.

Deduction for non-senior individual or HUF (section 153)

Deduction = lower of (savings account interest, ₹10,000)

Time deposit interest is excluded. Applies to deposits with a bank, a co-operative bank or a Post Office.

Deduction for senior citizen (section 153)

Deduction = lower of (interest on all deposits, ₹50,000)

Includes time deposits such as fixed and recurring deposits, within the listed institutions.

Time deposits

Time deposits = deposits repayable on expiry of fixed periods

This is the definition in section 153(5).

Savings account held by a firm, AOP or BOI (section 153(3))

No deduction to partner, member or individual of the body on interest under (2)(a)

The interest must be derived from a savings account held by or on behalf of the firm, AOP or BOI.

Deposit held by a firm, AOP or BOI (section 153(4))

No deduction to partner, member or individual of the body on interest under (2)(b)

The interest must be derived from any deposit held by or on behalf of the firm, AOP or BOI.

Order of computation

Tax on total income − Rebate = Tax after rebate; then + Surcharge (if any) + Cess = Total tax liability

Rebate comes before surcharge and cess. Confirm the sequence against the question's instruction and the section text.

Limit on rebate

Rebate allowed = as per the wording of the section (often capped at the lower of the tax and a stated ceiling)

The limit depends on the section. Check for a total income threshold, any marginal relief just above it, and any exclusion of tax on special-rate income. Apply a 'lower of tax and ceiling' cap only if the provision says so.

Deduction vs rebate

Deduction → reduces income. Rebate → reduces tax.

Use this to decide where the item goes in the computation.

Cess on tax after rebate

Cess = 4% × (tax after rebate + surcharge)

Cess is on the reduced tax, so a rebate also reduces cess.

Rebate under section 156(1)

Rebate = lower of (tax payable, ₹12,500), if total income ≤ ₹5,00,000

Applies to a resident individual. Total income above ₹5,00,000 gives no rebate under this sub-section.

Rebate under section 156(2)(a)

Rebate = lower of (tax payable, ₹60,000), if total income ≤ ₹12,00,000

Applies where total income is chargeable to tax under section 202(1).

Marginal relief under section 156(2)(b)

Rebate = Tax payable − (Total income − ₹12,00,000), if total income > ₹12,00,000 and tax > (Total income − ₹12,00,000)

Tax after rebate then equals the income above ₹12 lakh. If the tax does not exceed that excess, there is no rebate.

Tax after rebate

Tax after rebate = Tax before rebate − Rebate

Add health and education cess on this figure, not on the tax before rebate.

Cap on rebate

Rebate ≤ tax computed before the rebate

Sections 155(2) and 156(3): the rebate can never create a negative tax or exceed the tax payable.

Indian average rate of tax

Indian average rate = Tax on total income (before relief) ÷ Total income × 100

Used for unilateral relief. Compute on total income including the foreign income.

Foreign average rate of tax

Foreign rate = Foreign tax paid ÷ Foreign income doubly taxed × 100

Use the same income that India also taxes.

Unilateral relief (no DTAA)

Relief = Doubly taxed income × lower of (Indian average rate, Foreign average rate)

Applies only to a resident. The credit never exceeds the foreign tax actually paid.

Relief under a DTAA

Relief = as per the terms of the treaty, limited to the Indian tax on that income

Follow the treaty method given in the question. Do not apply the unilateral method by default. The credit still cannot exceed the Indian tax on that income.

Relief for arrears or advance salary

Relief = (Tax on current total income including arrears − Tax on current total income excluding arrears) − (Tax on earlier year's total income including arrears − Tax on earlier year's total income excluding arrears)

Relief is given only if the result is positive. Do this separately for each year to which arrears relate.

Deduction vs rebate vs relief

Deduction: reduces income. Rebate and relief: reduce tax.

A common one-line answer for the difference question.

Impermissible avoidance arrangement (two-part test)

Main purpose is a tax benefit AND at least one specified test is met

Tests: non-arm's-length rights or obligations, misuse or abuse of the Act, lack of commercial substance, or abnormal manner of dealing for non-bona fide purposes. Both parts are needed.

Core consequence under Section 181

Tax benefit denied → income and deductions recomputed as if the arrangement did not give the benefit

Done by disregarding, combining or recharacterising steps, or treating the arrangement as not entered into or carried out.

Tax benefit

Tax benefit = Tax payable without the arrangement − Tax payable with the arrangement

Includes reduction, avoidance or deferral of tax, or increase in a refund. Use it to quantify the amount recovered in numerical questions.

Reallocation and recharacterisation powers

Disregard / combine / recharacterise; treat connected persons as one; shift residence, place of transaction or situs; look through the corporate structure; equity ↔ debt; capital ↔ revenue; reallocate expenses, deductions, reliefs and rebates

Learn this as a list. Written answers earn marks for each distinct power named and applied.

Quick revision

• Order of computation: Gross Total Income, deductions, total income, tax, rebate, relief, tax payable.
• Deductions reduce income; rebate and relief reduce tax. Never mix the stages.
• A deduction is generally limited to the amount actually eligible and cannot exceed the income it relates to where the Act says so.
• Check the regime in the question before claiming any deduction.
• Rebate under Section 155 is for eligible resident individuals whose total income is within the limit in the Act.
• Rebate cannot exceed the tax payable on total income.
• Section 156 gives a separate rebate to certain individuals; check its own conditions.
• Relief for foreign tax depends on the same income being taxed in India and abroad.
• Section 181 deals with impermissible avoidance arrangements; learn the meaning and consequences.
• Use Income-tax Act, 2025 terms: tax year, not assessment year.
• Show each stage on its own line in written answers.
• Read the question for residential status and taxpayer type before applying a deduction.

Common mistakes

• Deducting Chapter deductions before set off of losses Fix: Remember GTI is before the Chapter deductions but after set off and carry forward of losses. Deductions come last.
• Letting deductions exceed GTI and showing negative total income Fix: Always apply section 122(2): the aggregate of deductions cannot exceed GTI.
• Claiming the full premium without testing it against the sum assured limit. Fix: Always compute 10%, 15% or 20% of actual capital sum assured by policy date and take the lower figure.
• Using bonus or returned premium to compute the capital sum assured. Fix: Use only the minimum amount assured on the insured event. Exclude bonus and premiums agreed to be returned.
• Allowing fixed deposit interest to a non-senior individual under section 153. Fix: For a non-senior or HUF, only savings account interest qualifies, up to ₹10,000. Time deposits are excluded.
• Applying the ₹10,000 cap to a senior citizen. Fix: A senior citizen gets up to ₹50,000 on deposits in any account, including time deposits.
• Deducting the rebate from total income Fix: Remember that rebate reduces tax. Put it after the tax on total income is computed.
• Applying rebate after adding cess Fix: Subtract the rebate first, then compute surcharge and cess on the reduced tax.
• Testing the limit on gross total income or salary instead of total income. Fix: Always compute total income after deductions first. Apply the ₹5,00,000 or ₹12,00,000 test only to that figure.
• Allowing rebate to a non-resident individual, HUF or firm. Fix: Section 156 is for an individual resident in India. Check residential status before anything else.

Exam tips

• MCQs often test one rule: aggregate deductions cannot exceed GTI, or the return condition under section 122(5). Read the options for these traps.
• In written answers, show GTI as a separate line, then each deduction with its section, then total income. Step marks follow this layout.
• Always state the condition you checked, such as the due date under section 263(1), even if it is met.
• If a company opts for section 199, 200 or 201, say that income is computed without the specified deductions before you compute tax at the concessional rate.
• Use the Income-tax Act, 2025 terms: tax year, not assessment year.
• In MCQs, the usual traps are the 10% versus 20% policy-date rule, the two-child tuition limit and the holding periods of two, three and five years. Learn these as a small list.
• In written answers, show the insurance limit working line by line (limit, premium, lower figure). Examiners award step marks for it.
• Always state who the payment is for. A premium on a parent's life or a brother's child does not qualify for an individual.