Section 156 Rebate for Resident Individuals Explained

Understand Rebate for Certain Individuals (Section 156)

Key rules to remember

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.

How to solve Rebate for Certain Individuals (Section 156) questions

1. 1Confirm the assessee is an individual and is resident in India. If not, no rebate under section 156.
2. 2Compute total income for the tax year after all deductions allowed under the regime in the question.
3. 3Decide which sub-section applies: 156(1) for total income up to ₹5,00,000, or 156(2) where tax is under section 202(1).
4. 4Compute tax on total income at the slab rates in the question, before cess and before rebate.
5. 5If total income is up to the limit, rebate = lower of the tax and the fixed cap (₹12,500 or ₹60,000).
6. 6If total income exceeds ₹12,00,000 under section 202(1), find the excess over ₹12,00,000. If tax exceeds the excess, rebate = tax − excess. Otherwise rebate is nil.
7. 7Subtract the rebate from the tax, then add 4% health and education cess on the balance if the question asks for it.
8. 8Write the final tax liability and a one-line note on why the rebate was or was not allowed.

Quickest way: Two-line rebate check

Common mistakes in Rebate for Certain Individuals (Section 156)

• Testing the limit on gross total income or salary instead of total income.

  Students stop after the first big figure and forget the deductions.

  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.

  The word 'assessee' in the section looks general.

  Fix: Section 156 is for an individual resident in India. Check residential status before anything else.

• Adding cess before deducting the rebate.

  Students follow the habit of adding cess straight after tax.

  Fix: Deduct the rebate from tax first. Then compute 4% cess on the tax after rebate.

• Giving the full ₹60,000 rebate even when the tax is lower.

  Students remember only the cap and forget the words 'whichever is less'.

  Fix: Rebate = lower of the tax and the cap. It can never exceed the tax.

• Denying all rebate when total income is just above ₹12,00,000.

  Students treat the limit as a cliff.

  Fix: Apply section 156(2)(b). If tax exceeds the excess over ₹12 lakh, the rebate is tax minus that excess.

• Using the ₹5,00,000 and ₹12,500 rule for a person taxed under section 202(1), or the reverse.

  Students mix up the two sub-sections.

  Fix: Read which tax rates the question uses. Sub-section (2) is for tax chargeable under section 202(1); sub-section (1) has the ₹5,00,000 limit.

Worked examples