1. What is Rebate?

Rebate is a tax concession given to taxpayers whose total income (for a financial year) does not exceed Rs. 5 lakhs.  Rebate is reduced from the income tax payable. 

Rebate = Tax payable or Rs. 12,500 whichever is less. Through this rebate, effectively, individuals with total income upto Rs. 5 lakhs do not suffer any tax.

Example:

Income   Rs. 4,50,000

Income tax     Rs. 10,000

(-) Rebate     Rs. 10,000

Total tax payable NIL

Note:

• Super senior citizens above 80 years of age are not eligible to claim rebate.
• Rebate is calculated before adding Cess.
• Only resident individuals can claim this rebate, meaning non-resident individuals and non-individuals such as firms, companies, trusts, AOP, BOI are not eligible for rebates.
• This rebate is available both under old and new tax regimes.

2. What is Surcharge?

A surcharge is an additional charge on the income tax of higher income persons. It is calculated as a percentage of income tax payable. 

For individuals, surcharge is applicable if their total income exceeds Rs. 50 lakhs.

The rates of surcharge are 10%, 15%, 25% and 37% depending on their income slab.

Suppose, total income of Mr. X exceeds Rs. 50 lakhs and is subject to surcharge @ 10%.

His income tax is Rs. 13,12,500

(-)Rebate NIL

(+) Surcharge @ 10%   Rs. 1,31,250

Total tax payable Rs. 14,43,750

3. What is Cess?

Cess is another form of tax which is collected with a specific objective. Currently, Health and Education Cess is levied at 4% for all individuals irrespective of income. It is calculated as a % of income tax (+ Surcharge, if applicable).

Example:

Income tax         Rs. 10,00,000

(-)Rebate NIL

(+) Surcharge   NIL

Income Tax Rs. 10,00,000

(+) Cess @ 4%             Rs. 40,000

Total tax payable  Rs. 10,40,000

4. What is Tax Deducted at Source (TDS)?

Income of a person is received through various sources such as salary, professional income, interest, rent, etc. Such income is subject to income tax in the hands of the receiver.

TDS is basically income tax deducted by the person making the payment. The person who pays (such as the employer, tenant, bank) deducts tax at a certain percentage of income and deposits the same with Government and pays the balance to the payee.

Suppose, Mr. X is employed with ABC Company. Monthly salary of Mr. X is Rs. 1,00,000. In this case, the company ABC deducts Rs. 5000 (Approx.) every month from the salary of Mr. X and deposits the same with Government against Mr. X’s PAN and pays Rs. 95,000 to Mr. X. Mr. X reduces this amount (Rs. 5000) while calculating the total tax payable by him at the time of filing ITR.

This way, the responsibility to pay tax is partially shifted from the person receiving income to the person paying. When tax is deducted in instalments, it is of less burden to receiver. As far as Government is concerned, tax is collected in advance instead of waiting till ITR filing. Also, instead of following up with 100 employees for tax payments, the government through TDS can follow up with 1 employer, thus simplifying the tax collection process.

5. What is Tax Collected at Source (TCS)?

TCS is income tax collected by seller from buyer. The seller collects tax from the buyer and deposits the same with Government against buyer’s PAN.

Example:

Sale price of car – Rs. 12,00,000

Add: TCS @ 1% – Rs. 12,000

Total amount collected from buyer – Rs. 12,12,000

The seller deposits Rs. 12,000 with Government as TCS. Like TDS, TCS can also be reduced from tax payable at the time of filing ITR.

Sales that require TCS to be collected by the seller are:

• Liquor
• Forest produce, Timber wood, tendu leaves
• Scrap
• Lignite, coal, iron ore
• Motor vehicle > Rs. 10 lakhs
• Parking lot, Toll Plaza and Mining and Quarrying
• If the seller’s turnover exceeds Rs. 10 crores in the preceding financial year and he receives more than Rs. 50 lakhs as consideration from the buyer (in a financial year).

6. What is Advance Tax?

As the name indicates, advance tax is income tax paid in advance.

If the tax liability (for the whole year) is more than Rs. 10,000 after considering TDS/TCS and eligible deductions, the person is required to pay the tax amount in advance as “Advance tax”.