Maximizing Section 87A Rebate and Avoiding Notices for Missing Deductions in ITR for FY 2024-2025

Q: What is the maximum rebate available under Section 87A for FY 2024-25?

For FY 2024-25, Section 87A offers a tax rebate of up to ₹25,000 for taxpayers whose taxable income does not exceed ₹7 lakh under the new tax regime. In contrast, under the old tax regime, the rebate is capped at ₹12,500 for those with taxable income up to ₹5 lakh. The rebate directly reduces the income tax liability, effectively lowering your tax payable amount. For example, if your total tax liability is ₹25,000 and you are eligible for the Section 87A rebate, your entire tax liability would be waived. However, if your tax liability is lower than the rebate amount, the rebate will only reduce the tax payable to zero.

Rajesh Kumar Kar
May 19
10 min read

Updated: May 21

In the ever-evolving world of tax laws, Section 87A of the Income Tax Act provides a valuable tax rebate for individuals in India, especially those with lower to middle income levels. For the financial year (FY) 2024-25, the Section 87A rebate has seen enhancements, allowing taxpayers to save more. However, the key to truly benefiting from this provision lies in understanding the nuances of how it works and ensuring proper filing practices.

Maximizing the Section 87A rebate requires more than just filling out tax forms correctly; it involves careful planning to choose the right tax regime and ensuring that every eligible deduction is accounted for accurately. Common mistakes, such as missing deductions, mismatched income details, or failing to claim the rebate due to improper filing, can result in notices from the Income Tax Department, leading to penalties or disallowance of claims.

How to Maximize Section 87A Rebate and Avoid Notices for Missing Deductions in ITR?
Understanding Section 87A Rebate for FY 2024-25
Maximizing Section 87A Rebate
Avoiding Notices for Missing or Incorrect Deductions
Conclusion
FAQs

How to Maximize Section 87A Rebate and Avoid Notices for Missing Deductions in ITR?

To fully benefit from the Section 87A rebate and minimize the chances of receiving notices for missing deductions, taxpayers must carefully evaluate which tax regime—old or new—offers the best benefits. Under the new regime for FY 2024-25, a rebate of ₹25,000 is available for individuals with a taxable income up to ₹7 lakh. On the other hand, the old regime provides a rebate of ₹12,500 for taxpayers with a taxable income up to ₹5 lakh. While the new regime offers a higher rebate, it comes with no scope for claiming deductions such as those under Section 80C, 80D, etc. Conversely, the old regime allows you to claim multiple deductions but has a smaller rebate cap.

Beyond regime selection, accurate reporting is crucial. All eligible deductions, such as those under Section 80C, 80D, and others, should be claimed to ensure that taxable income is reduced enough to qualify for the maximum rebate. Additionally, ensure that all income sources—whether from salary, interest, or any other source—are correctly reported. Misreporting even small amounts can lead to notices, so maintaining proper documentation for all investments, insurance premiums, and other deductible expenses is vital.

Lastly, taxpayers should ensure that pre-filled data on the e-filing portal is correct and verify it against their own records. Any discrepancies should be promptly addressed, either by filing a revised return or responding quickly to notices issued by the Income Tax Department. These steps will ensure that taxpayers not only maximize the Section 87A rebate but also reduce the likelihood of facing issues due to incorrect filings or missed deductions.

Understanding Section 87A Rebate for FY 2024-25

Section 87A of the Income Tax Act provides tax relief for resident individuals in India who fall under lower to middle-income brackets. This rebate directly reduces the amount of tax payable, making it especially valuable for individuals with taxable income within specific thresholds.

Rebate Amount and Income Limits

For FY 2024-25, the Section 87A rebate offers the following:

New Tax Regime: Taxable income up to ₹7 lakh – Rebate of ₹25,000
Old Tax Regime: Taxable income up to ₹5 lakh – Rebate of ₹12,500

The rebate under the new tax regime is more attractive for individuals with a taxable income of up to ₹7 lakh but without significant deductions to claim.

How the Rebate Works

The Section 87A rebate works by directly reducing the amount of tax payable. Once the taxpayer's total tax liability is calculated, the rebate is applied to lower the total liability. If the rebate exceeds the total tax payable, the excess amount is not refunded.

For example, if a taxpayer’s tax liability is ₹80,000 under the new tax regime, they can claim the full rebate of ₹25,000, reducing their tax payable to ₹55,000. If their total tax liability is ₹20,000, they can only claim ₹20,000, and the remaining ₹5,000 will not be refunded.

Eligibility Criteria

To be eligible for the Section 87A rebate, the taxpayer must meet the following conditions:

Resident Individual: Only resident individuals can avail of this rebate. Non-residents and Hindu Undivided Families (HUFs) are not eligible.
Income Limits:
For the new tax regime: The rebate is available for taxpayers with taxable income up to ₹7 lakh.
For the old tax regime: The rebate is available for taxpayers with taxable income up to ₹5 lakh.
Income Type: The rebate applies only to income taxed under the normal income tax slabs and does not cover special income types like capital gains or interest from tax-free bonds.

Maximizing Section 87A Rebate

While Section 87A offers an effective way to reduce tax liability, maximizing the rebate requires careful consideration of various factors.

Choose the Appropriate Tax Regime

Choosing between the old and new tax regimes is crucial for maximizing the rebate. The new regime offers a higher rebate (₹25,000 for taxable income up to ₹7 lakh) but disallows deductions such as those under Sections 80C and 80D. The old regime allows deductions but provides a lower rebate (₹12,500 for taxable income up to ₹5 lakh).

To maximize your rebate, calculate your total tax liability under both regimes and select the one that results in a lower tax payable after accounting for the rebate.

Claim All Eligible Deductions Accurately

Under the old tax regime, several tax-saving opportunities are available under sections like 80C, 80D, and 80G. To fully benefit from the Section 87A rebate, ensure these deductions are claimed correctly. Deductions for investments in PPF, EPF, life insurance premiums, health insurance, and charitable donations all help lower taxable income, thereby qualifying you for a higher rebate if your income falls under the rebate limits.

Ensure you have proper documentation for each claim to avoid discrepancies that could trigger notices.

Consolidate Income and Deductions Properly

For taxpayers who have multiple sources of income or who changed jobs during the year, it's essential to consolidate all income sources and deductions accurately. This includes combining income from multiple Form 16s, interest income, dividends, and rental income. Cross-check this consolidated income with Form 26AS to ensure that all income is accounted for and that deductions are applied correctly.

Validate Bank Account Details

When filing your ITR, make sure your bank account details are accurate and properly linked to your PAN. This ensures smooth processing of refunds. You can verify your bank account information in the "My Profile" section of the Income Tax portal before submitting your return.

Avoiding Notices for Missing or Incorrect Deductions

To avoid notices from the Income Tax Department, it's essential to ensure that all income, deductions, and tax details are correctly reported.

Respond Promptly to Notices

If you receive a notice from the Income Tax Department, respond promptly. Notices often arise from discrepancies between the ITR filed and the records with the department. Ignoring these notices can lead to penalties or further tax assessments. Ensure that any necessary documentation is submitted on time to resolve the issue.

Cross-Check Pre-Filled Information

Before filing your return, check the pre-filled data provided by the Income Tax Department, such as TDS details, salary, and other income. Ensure this information matches your own records. Any discrepancies could trigger notices, so double-check all pre-filled data carefully.

Report All Income Sources

It’s essential to report all income sources, including even small sources like savings account interest. The Income Tax Department cross-verifies these with your bank and TDS records. Failing to report income can lead to notices, even if you are eligible for deductions like 80TTA or 80TTB.

File Revised Returns if Needed

If you realize there are mistakes in your filed ITR, you can file a revised return under Section 139(5) before the deadline (December 31, 2025, for FY 2024-25). This ensures that errors are corrected and helps avoid penalties or further scrutiny.

Keep Proper Documentation

To avoid issues and substantiate your claims, maintain proper documentation for all income, deductions, and tax payments. This includes Form 16, salary slips, proof of tax-saving investments, insurance premiums, and other deductible expenses.

Conclusion

Maximizing the Section 87A rebate for FY 2024-25 requires strategic planning, accurate reporting, and proper documentation. By carefully selecting the tax regime, ensuring all income is reported correctly, and claiming all eligible deductions, taxpayers can reduce their tax liability while avoiding common errors that lead to notices. For seamless and efficient tax filing, platforms like TaxBuddy offer AI-driven automation and expert guidance to ensure accuracy and avoid errors.

FAQs

1. What is the maximum rebate available under Section 87A for FY 2024-25?

For FY 2024-25, Section 87A offers a tax rebate of up to ₹25,000 for taxpayers whose taxable income does not exceed ₹7 lakh under the new tax regime. In contrast, under the old tax regime, the rebate is capped at ₹12,500 for those with taxable income up to ₹5 lakh. The rebate directly reduces the income tax liability, effectively lowering your tax payable amount. For example, if your total tax liability is ₹25,000 and you are eligible for the Section 87A rebate, your entire tax liability would be waived. However, if your tax liability is lower than the rebate amount, the rebate will only reduce the tax payable to zero.

2. Can I claim deductions under Section 80C and Section 80D along with the Section 87A rebate?

Yes, you can claim deductions under Section 80C and Section 80D along with the Section 87A rebate, but this is only applicable if you are filing under the old tax regime. Under the old tax regime, you are allowed to claim deductions for investments in PPF, life insurance premiums, NPS contributions, and health insurance premiums, which will reduce your taxable income. This reduced taxable income could help you qualify for a higher Section 87A rebate, provided your taxable income is below the prescribed limits for the rebate.

Under the new tax regime, however, these deductions are not available. The new regime offers a lower tax rate but does not allow deductions like those under Section 80C or 80D, so taxpayers opting for the new regime can only claim the Section 87A rebate without additional deductions.

3. How do I calculate my eligibility for the Section 87A rebate under the new tax regime?

Under the new tax regime for FY 2024-25, the Section 87A rebate is available for taxpayers with a taxable income up to ₹7 lakh. This means if your total taxable income is ₹7 lakh or less, you are eligible for a rebate of ₹25,000. However, if your taxable income exceeds ₹7 lakh, you will not be eligible for the rebate, and the amount of tax you owe will increase based on the applicable tax rates. It is crucial to note that the new regime offers no deductions, so all income is taxed at the reduced rates after considering the rebate.

4. What if I miss out on deductions like 80C while filing my ITR? Can I still claim the Section 87A rebate?

Yes, you can still claim the Section 87A rebate if your taxable income is within the prescribed limits for the rebate, even if you miss out on claiming deductions like those under Section 80C. However, if you miss out on claiming deductions, your taxable income may be higher, which could reduce the amount of rebate you are eligible for under Section 87A. For example, if your taxable income exceeds ₹5 lakh under the old tax regime, you will only receive the rebate of ₹12,500, and if it exceeds ₹7 lakh under the new tax regime, you will not be eligible for any rebate.

5. Is the Section 87A rebate available for all income types?

No, the Section 87A rebate applies only to income taxed under the normal income tax slabs and is not applicable to special income types like capital gains, interest income from tax-free bonds, or income from lotteries and gambling. If you have income from these sources, it will not be eligible for the Section 87A rebate. Ensure that only income that is subject to regular tax slabs is considered for this rebate.

6. Can I claim the Section 87A rebate under both the old and new tax regimes in the same year?

No, you cannot claim the Section 87A rebate under both tax regimes in the same year. You must choose either the old tax regime or the new tax regime when filing your return. Under the old tax regime, you can claim various deductions (such as under Sections 80C, 80D, etc.), and the rebate is capped at ₹12,500 for taxable income up to ₹5 lakh. In contrast, the new tax regime offers a higher rebate of ₹25,000 for taxable income up to ₹7 lakh but does not allow deductions. Once you choose your preferred regime, all calculations for rebate and tax will be based on that choice.

7. How do I avoid receiving notices for missing deductions under Section 87A?

To avoid receiving notices for missing deductions, it's essential to ensure all income is reported accurately, and deductions are correctly claimed. You should cross-check the pre-filled data in the ITR form with your own records and ensure there are no discrepancies. It's also important to verify TDS details using Form 26AS and ensure that your total taxable income after deductions is within the eligible range for the Section 87A rebate. If there are discrepancies or errors, promptly file a revised return to correct the details and avoid triggering notices.

8. What happens if I claim more deductions than I am eligible for?

Claiming more deductions than you are eligible for can lead to mismatches in your ITR and trigger notices from the Income Tax Department. Such discrepancies may lead to penalties or disallowance of the deductions. The department may also demand additional tax or impose interest on unpaid dues. Therefore, it is important to ensure that the deductions you claim are supported by valid documentation and are within the limits prescribed under the tax laws.

9. Can I claim deductions for multiple Form 16s if I switched jobs during the year?

Yes, if you switched jobs during the year and have received multiple Form 16s, you can claim deductions for both Form 16s. It’s essential to consolidate your income and deductions from both Form 16s and ensure that TDS details are correctly reflected. The total income from both employers should be included in your return, and you should cross-check this with Form 26AS to ensure that TDS has been deducted and reported correctly.

10. Is it mandatory to link my bank account with the Income Tax Portal?

Although linking your bank account with the Income Tax Portal is not mandatory, it is highly recommended. Linking your bank account ensures that any refunds are processed quickly and without delay. This also helps verify that the bank account information matches the one you provided for tax filing, ensuring smooth and timely processing of refunds. You can verify and link your bank account details in the "My Profile" section of the e-filing portal.

11. How can I rectify mistakes in my ITR after filing?

If you realize that you made a mistake in your filed ITR, you can rectify it by filing a revised return under Section 139(5). The revised return allows you to correct any errors or omissions, such as missing deductions, incorrect income reporting, or errors in tax calculations. Ensure that the revised return is filed before the deadline (December 31, 2025, for FY 2024-25). This will help avoid penalties or additional scrutiny from the tax department.

12. How can I ensure my income from interest is correctly reported in my ITR?

To ensure that your income from interest is reported correctly in your ITR, cross-check your bank statements and Form 26AS to ensure that the TDS deducted matches the interest income reported. Additionally, if you earn interest from savings accounts, you must report it under “Income from Other Sources,” and if applicable, claim the deductions under Section 80TTA (for non-senior citizens) or Section 80TTB (for senior citizens). These sections provide a tax benefit for interest earned on savings accounts, but the income still needs to be reported in your ITR.