Deductions — Parts D & E, Rebates (Sections 153–157)
Parts D & E — Interest, Disability & Rebates
The final deduction sections of Chapter VIII — interest on deposits (₹10,000/₹50,000) and disability deduction (₹75,000/₹1,25,000) — plus Chapter IX rebates: the ₹12,500 rebate under old regime, the ₹60,000 rebate under new regime for income up to ₹12 lakh, and salary arrears relief.
🔄 Replaces: Sections 80TTA, 80TTB, 80U (Chapter VIII) and Sections 87, 87A, 89, 89A (Chapter IX) of the Income Tax Act 1961
📅 Effective: 1st April 2026 (Tax Year 2026-27 onwards)
Section 153 — Interest on Deposits (80TTA / 80TTB)
Replaces Sections 80TTA and 80TTB of the 1961 Act. Deduction on interest income from savings accounts (and all accounts for senior citizens). Not available under the new tax regime.
Deduction Limits [Section 153(2)]
| Who | Type of Deposit | Deduction Limit | Old Section |
|---|---|---|---|
| Individual (non-senior citizen, below 60 years) | Savings account only — excludes Fixed Deposits, Recurring Deposits, and all time deposits [Section 153(5)] | ₹10,000 | 80TTA |
| HUF | Savings account only | ₹10,000 | 80TTA |
| Individual — Senior Citizen (60 years or more) | Any deposit — includes savings accounts, Fixed Deposits (FD), Recurring Deposits (RD), and all other time deposits | ₹50,000 | 80TTB |
Where the deposit can be held [Section 153(1)]
Any bank under the Banking Regulation Act 1949, including co-operative banks and RBI-regulated banking institutions
Co-operative society carrying on banking business, including co-operative land mortgage banks and development banks
As defined under Section 2(d) of the Post Office Act 2023 — covers Post Office savings accounts and deposits
No Pass-through for Firms / AOP / BOI [Sections 153(3)–(4)]
Section 154 — Person with Disability (80U)
Replaces Section 80U of the 1961 Act. A fixed deduction for a resident individual who is themselves certified as a person with disability. Not available under the new tax regime.
Disability of 40% or more
Fixed — not based on actual expenditure
Disability of 80% or more
Fixed — not based on actual expenditure
Conditions [Section 154(2)]
Definitions [Section 154(3) read with Section 127(9)]
| Term | Meaning |
|---|---|
| Disability | As per Section 2(i) of Persons with Disabilities Act, 1995 — includes blindness, low vision, leprosy-cured, hearing impairment, locomotor disability, mental retardation, mental illness. Also includes autism, cerebral palsy, and multiple disabilities per the National Trust Act, 1999. |
| Person with Disability | Person with any disability of 40% or more under the Persons with Disabilities Act, 1995, or under the National Trust Act, 1999 |
| Person with Severe Disability | 80%+ disability under Section 56(4) of the PwD Act, 1995; or severe disability under Section 2(o) of the National Trust Act, 1999 |
Section 127 vs Section 154 — Key Distinction
These two sections often cause confusion. Here's the critical difference:
| Aspect | Section 127 (80DD) | Section 154 (80U) |
|---|---|---|
| Who has the disability? | The dependant — not the assessee themselves | The assessee themselves |
| Who claims the deduction? | The assessee (caregiver) — for caring for a disabled dependant | The disabled individual themselves |
| Eligibility | Individual or HUF (resident) | Resident individual only (not HUF) |
| Deduction amounts | ₹75,000 (disability) / ₹1,25,000 (severe) | ₹75,000 (disability) / ₹1,25,000 (severe) |
| Can both be claimed? | ❌ No — if the dependant claims Section 154 (self-disability deduction), the caregiver cannot also claim Section 127 for that same person [Section 127(8)] | |
| Actual expense required? | No — fixed deduction regardless of actual expenditure | No — fixed deduction regardless of actual expenditure |
Chapter IX — Section 156: Tax Rebate
Replaces Section 87A of the 1961 Act. Section 156 provides two distinct rebates — one for the old tax regime and one for the new tax regime.
Old Tax Regime Rebate [Section 156(1)]
| Condition | Rebate Amount |
|---|---|
| Total income ≤ ₹5,00,000 (resident individual) | Lower of 100% of tax payable or ₹12,500 |
| Total income > ₹5,00,000 | No rebate |
Effect: Any resident individual with total income up to ₹5,00,000 effectively pays zero income tax under the old regime — the rebate wipes out the entire tax liability (up to ₹12,500).
New Tax Regime Rebate [Section 156(2) — Section 202(1)]
For resident individuals whose total income is chargeable under the new tax regime (Section 202):
| Income Slab | Rebate |
|---|---|
| Total income ≤ ₹12,00,000 | Lower of 100% of tax payable or ₹60,000 — effectively zero tax |
| Total income > ₹12,00,000 but tax payable > excess over ₹12L | Marginal relief — tax reduced to the amount by which income exceeds ₹12,00,000 |
| Total income substantially > ₹12,00,000 | No rebate — full tax as per Section 202 rates |
Marginal relief explained: Where income is say ₹12.5 lakh, the tax computed @ new regime rates (before rebate) might be ₹65,000. The excess over ₹12L is ₹50,000. Since tax (₹65,000) > excess (₹50,000), the rebate reduces tax to ₹50,000. This ensures that earning slightly above ₹12L doesn't result in paying more tax than the marginal income itself.
New Tax Regime Slab Rates (Section 202) — for reference
| Total Income Slab | Tax Rate | After Section 156 Rebate |
|---|---|---|
| Up to ₹4,00,000 | Nil | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% | Nil (rebate covers full tax) |
| ₹8,00,001 – ₹12,00,000 | 10% | Nil (rebate covers full tax up to ₹12L) |
| ₹12,00,001 – ₹16,00,000 | 15% | Tax minus marginal relief |
| ₹16,00,001 – ₹20,00,000 | 20% | Full tax (no rebate) |
| ₹20,00,001 – ₹24,00,000 | 25% | Full tax (no rebate) |
| Above ₹24,00,000 | 30% | Full tax (no rebate) |
Section 157 — Relief When Salary is Paid in Arrears or Advance
Replaces Section 89 of the 1961 Act. Where receipt of salary in lump sum (arrears or advance) pushes an assessee into a higher tax bracket than would have applied if income had been received in the normal year of accrual, Section 157 provides relief.
- Arrear salary — salary of prior years received this year (e.g., Pay Commission arrears)
- Advance salary — salary of future years received this year
- Salary for more than 12 months in one tax year
- Profits in lieu of salary under Section 18(1) (e.g., lump sum gratuity, leave encashment)
- Arrears of family pension as defined in Section 93(1)(d)
How to claim: The assessee makes an application to the Assessing Officer, who computes the relief. The AO calculates what the tax would have been if the arrears had been received in the year(s) they actually related to, and allows the excess tax paid in the current year as relief.
Section 158 — Retirement Benefit Account in Notified Foreign Country
Replaces Section 89A of the 1961 Act. Relief for persons who were resident abroad, maintained a retirement benefit account there (taxed only on withdrawal, not on accrual, in that country), and subsequently became resident in India.
Without this section, such a person would be taxed in India on income accruing in that foreign retirement account on an accrual basis — even though the foreign country taxes it only on withdrawal. Section 158 allows the income to be taxed in India in the manner and year as may be prescribed — aligning India taxation with the year of actual withdrawal/redemption.
Notified countries are notified by Central Government. The US, UK, and Canada have been the most commonly notified countries (covering 401(k), ISA, RRSP type accounts).
Practical Q&A
| Question | Answer |
|---|---|
| I am a senior citizen with ₹2 lakh FD interest and ₹8,000 savings bank interest. How much deduction under Section 153? | ₹50,000 — senior citizens get deduction on ALL deposit interest (including FD) up to ₹50,000. Total interest = ₹2,08,000. Deduction = ₹50,000. Taxable interest = ₹1,58,000. |
| Non-senior citizen with ₹15,000 savings account interest and ₹80,000 FD interest. Section 153 deduction? | Only ₹10,000 — non-seniors get deduction only on savings account interest, capped at ₹10,000. The ₹80,000 FD interest is fully taxable. |
| My son has 50% disability and earns ₹4 lakh salary. Can I claim Section 127 deduction? | No — if your son claims Section 154 (₹75,000 self-disability deduction) in his own return, you cannot claim Section 127. If he does NOT claim Section 154, you can claim Section 127 provided he is dependent on you. |
| My total income under new regime is ₹12.8 lakh. What is my tax? | Tax @ new regime rates on ₹12.8L = approx ₹83,000. Excess over ₹12L = ₹80,000. Since tax (₹83,000) > excess (₹80,000), marginal relief applies. Tax payable = ₹80,000 (plus 4% health & education cess = ₹83,200 total). |
| Can I claim Section 156 rebate if my income includes LTCG from listed equity? | For new regime: rebate under Section 156(2) is restricted — per Section 198(7), the rebate is allowed only on income-tax reduced by the tax on LTCG under Section 198. The rebate does not reduce LTCG tax itself. |
| I received ₹5 lakh as salary arrears for FY 2022-23 in FY 2026-27. How do I get relief? | Apply to your Assessing Officer under Section 157. They will compute what tax would have been payable had the ₹5L been received in FY 2022-23, and allow the difference (if any) as relief. File Form 10E before filing your return. |