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TMI BlogRelief to resident individual taxpayers with lower and middle incomes by reducing their effective tax liability : Clause 156 of the Income Tax Bill, 2025 Vs Section 87A of the Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ir effective tax liability. Over the years, the quantum and eligibility criteria for such rebates have evolved, reflecting both fiscal policy objectives and socio-economic considerations. The 2025 Bill proposes to consolidate, clarify, and in some respects, expand the scope of these rebates, particularly in the context of the new tax regime and changing economic realities. This commentary provides a comprehensive analysis of Clause 156, examining its structure, objectives, and practical implications, followed by a detailed comparative analysis with the existing Section 87A. The analysis explores legislative intent, interpretative nuances, and the broader impact on taxpayers and the tax administration. 2. Objective and Purpose The core ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 100% of income-tax payable or Rs. 60,000, whichever is less. * (b): For total income exceeding Rs. 12,00,000, a deduction equal to the income-tax payable on the total income, reduced by the amount by which total income exceeds Rs. 12,00,000. * Sub-clause (3): Caps the deduction under sub-clause (2) to not exceed the income-tax payable as per rates u/s 202(1). b. Interpretation and Legal Nuances Clause 156 is structured to provide a two-tiered rebate system: * General Rebate: For all resident individuals with total income up to Rs. 5,00,000, regardless of the tax regime, the rebate is up to Rs. 12,500 or 100% of the tax liability, whichever is less. This provision continues the long-standing policy of exempting low-income earners f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plications a. Impact on Taxpayers The primary beneficiaries of Clause 156 are resident individual taxpayers with incomes up to Rs. 5,00,000 (all regimes) and up to Rs. 12,00,000 (under the new regime). For the first group, the provision effectively ensures zero tax liability, maintaining continuity with past practice. For the second group, the enhanced rebate significantly reduces the tax burden for middle-income earners, aligning with the government's stated objective of rationalizing personal taxation and increasing net disposable income. The introduction of a higher rebate threshold under the new regime is likely to boost the attractiveness of the simplified tax regime, potentially increasing its adoption. The tapering mechanism f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax payable or Rs. 12,500, whichever is less. * For those opting for taxation u/s 115BAC(1A) (the new regime), and with total income not exceeding Rs. 12,00,000, a rebate of 100% of income-tax payable or Rs. 60,000, whichever is less. * For incomes exceeding Rs. 12,00,000, a deduction equal to the amount by which the income-tax payable exceeds the excess of total income over Rs. 12,00,000. * The rebate cannot exceed the tax payable as per the rates u/s 115BAC(1A). The provision has been periodically updated to increase the threshold and quantum of rebate, reflecting inflation and the government's desire to provide greater relief to the lower and middle-income groups. b. Comparative Table of Key Features Feature Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture is more intuitive, with sub-clauses clearly delineating the general and enhanced rebates. * Terminology and Cross-Referencing: Clause 156 refers to Section 202(1) for the new regime, whereas Section 87A refers to Section 115BAC(1A). The substantive effect is similar, but the cross-referencing reflects the restructuring of the tax code in the new Bill. * Legislative Clarity: The 2025 Bill's drafting addresses ambiguities present in earlier versions of Section 87A, particularly concerning the computation of the tapering rebate. Clause 156's language is more accessible and less prone to misinterpretation. * Policy Continuity: Both provisions reflect the government's ongoing commitment to providing relief to lower and mid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebate eligibility and amount. * Requires robust systems to handle the computation of the tapering rebate for incomes just above the threshold. * May necessitate updated forms, software, and guidance to ensure smooth implementation. c. For Policy and Revenue * Likely to increase disposable income among lower and middle-income groups, potentially boosting consumption and economic activity. * May have a moderate impact on direct tax collections, but aligns with the government's stated policy objectives. * Supports the transition towards a simplified, equitable, and modern personal tax regime. 7. Conclusion Clause 156 of the Income Tax Bill, 2025, represents a logical evolution and consolidation of the rebate provisions previ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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