About Section 88 of the Income Tax Act

You get a 20% rebate on the repayment of principal during a financial year. Once again, over the years, the principal repayment eligible for rebate has been enhanced from Rs. 10,000 to the current limit of Rs. 20,000. Stamp duty, registration fee or other such expenses paid for the purpose of transfer of such house property to the assessee is also considered under this amount. Going back to our earlier example: Taxable income of Rs. 4 lakh Taxable income stands reduced to Rs. 2.5 lakh Tax before rebate and surcharge: Rs. 49,000 (no surcharge is computed as surcharge is applicable on tax payable after allowing for rebate under Section 88) Rebate of Rs. 4,000 (20% of Rs. 20,000 being principal repayment) Tax less rebate of Rs. 4,000 + surcharge @ 2% = Rs. 45,900 Tax saved = Rs. 49,900 (Rs. 45,900 as shown above plus rebate of Rs. 4,000).