Maximizing Tax Savings with Section 87A Rebate in Your ITR Filing
- PRITI SIRDESHMUKH
- Jul 9
- 9 min read
Section 87A of the Income Tax Act offers taxpayers a significant rebate, providing a reduction in the amount of tax payable. This rebate is particularly beneficial for individuals earning below a certain income threshold, making it an important provision for those looking to optimize their tax liability. With the upcoming changes for FY 2025-26 (Assessment Year 2026-27), it is crucial to understand how the Section 87A rebate works, the updates for the new assessment year, and how to make the most of it.
Table of Contents
What is Section 87A Rebate?
Section 87A provides a tax rebate for individuals with a taxable income under a specified limit. For eligible taxpayers, it directly reduces the amount of tax payable, up to a maximum limit. The main objective of this rebate is to provide relief to taxpayers in the lower income brackets by reducing their overall tax burden.
For FY 2024-25 (Assessment Year 2025-26), the maximum rebate under Section 87A is ₹12,500, available to individuals whose taxable income does not exceed ₹5,00,000. This means that if your taxable income is ₹5,00,000 or less, you are eligible to receive the full rebate, reducing your tax payable by ₹12,500.
Latest Updates for FY 2025-26 (AY 2026-27)
The government has made some important updates for the new assessment year, impacting the eligibility criteria for Section 87A and the amount of the rebate. While the details for FY 2025-26 (AY 2026-27) are still being finalized, it’s anticipated that the income thresholds and rebate limits may undergo revisions.
As of the current tax regime, taxpayers with a taxable income of up to ₹5,00,000 are eligible for the full ₹12,500 rebate under Section 87A. However, it is expected that this limit could be adjusted to account for inflation or other economic factors. Furthermore, the introduction of new rules under the tax regime or additional exclusions could impact the way this rebate is applied.
It is also important to note that if the taxable income exceeds ₹5,00,000 but falls within the prescribed limit for other exemptions, individuals may still qualify for partial rebates, depending on the changes in the upcoming budget.
How to Claim Section 87A Rebate in Your ITR
Claiming the Section 87A rebate in your ITR is a straightforward process. Here's how you can do it:
Determine Eligibility: Before you claim the rebate, ensure that your taxable income is under ₹5,00,000. If it is, you are eligible for the full rebate of ₹12,500. For incomes above this threshold, you will not be eligible for the rebate.
Fill in Your ITR: When filing your Income Tax Return, you will need to enter your total taxable income. If your income qualifies for the rebate, the tax filing system will automatically calculate and apply the rebate in your final tax computation.
Verify Tax Calculation: Make sure to check the calculation of your tax payable, especially if your taxable income is near the ₹5,00,000 limit. This will ensure that the rebate is correctly applied.
Rebate Application in ITR: In the ITR forms (typically ITR-1 or ITR-2), there is a section for rebates. The amount will automatically be adjusted based on your taxable income. Make sure to file the correct form that corresponds to your income type.
Submit the ITR: After filling in the required details, submit your ITR. The rebate will be reflected in the final amount of tax you owe or the refund you receive, depending on your overall tax liability.
Strategies to Maximize Section 87A Rebate
Maximizing the benefits of Section 87A is key to minimizing your overall tax liability. Here are some strategies you can implement:
Optimize Deductions under Sections 80C, 80D, and Others: Reducing your taxable income below ₹5,00,000 is crucial for claiming the full rebate. You can achieve this by investing in tax-saving instruments like PPF, ELSS, or NPS under Section 80C, or by making health insurance premium payments under Section 80D.
Use the New Tax Regime Wisely: The new tax regime allows you to skip various exemptions and deductions but offers lower tax rates. If your income is close to ₹5,00,000, it may be worth evaluating whether the new regime gives you a better result. Consider all your deductions before deciding which regime benefits you most.
Tax Planning with Family Members: If your family members (such as spouse or parents) have lower incomes, you can help reduce the tax burden collectively. Consider transferring income-generating assets or jointly investing in tax-saving instruments.
Ensure Timely and Accurate Filing: Ensure that your filing is accurate, and you meet all deadlines. Filing your ITR on time will ensure you get the full benefit of Section 87A without penalties or missed opportunities.
Important Points
The Section 87A rebate is a significant tax relief measure provided to individual taxpayers in India, aimed at reducing the overall tax liability. This rebate is designed to benefit taxpayers with lower taxable income, helping to lower their effective tax rates. However, several important conditions and limits govern the eligibility and applicability of this rebate. Here's an in-depth explanation of the key points related to Section 87A, which should help you understand whether you're eligible and how to make the most of it.
Taxable Income Limit for Section 87A Rebate
One of the key eligibility criteria for the Section 87A rebate is the taxable income limit. The rebate is available only if your taxable income does not exceed ₹5,00,000. Taxable income refers to the income after applying various deductions, exemptions, and allowances as per the Income Tax Act. If your income exceeds ₹5,00,000, you will not be eligible to claim the Section 87A rebate.
To clarify, taxable income is your total income minus deductions allowed under sections such as 80C, 80D, 10(13A) (for HRA), and other applicable exemptions. Therefore, even if your gross income is over ₹5,00,000, you may still qualify for the rebate if your taxable income after deductions is below ₹5,00,000.
Eligibility Check for Section 87A Rebate
To determine your eligibility for the Section 87A rebate, it’s essential to evaluate your taxable income after applying all eligible deductions. If your gross income exceeds ₹5,00,000, you need to reduce it through various deductions available under the Income Tax Act, such as:
Section 80C: Deductions for investments in specified financial instruments like life insurance premiums, PPF, EPF, and more, up to a limit of ₹1,50,000.
Section 80D: Deductions for premiums paid on health insurance policies for self, family, and parents.
Section 80G: Donations to charitable organizations.
Section 80E: Interest on education loans.
By utilizing these deductions effectively, you can reduce your taxable income to ₹5,00,000 or below and thus qualify for the Section 87A rebate.
Rebate Amount: Capped at ₹12,500
For taxpayers who meet the eligibility criteria—those whose taxable income is ₹5,00,000 or less—the maximum rebate amount they can claim under Section 87A is ₹12,500. This amount directly reduces your tax liability.
For instance, if your taxable income is ₹5,00,000, the rebate will completely offset your tax liability under the old tax regime (assuming no other taxes or liabilities). In this case, you won’t need to pay any income tax, making the Section 87A rebate extremely beneficial for taxpayers with lower taxable incomes.
However, it is important to note that if your taxable income is higher than ₹5,00,000, you will not be eligible for the rebate at all, regardless of any deductions you may have. Therefore, it's crucial to monitor your taxable income and explore tax-saving opportunities to qualify for the rebate.
Changes for Upcoming Assessment Years
Tax policies, including eligibility for rebates like Section 87A, are subject to change with each Union Budget. The government may alter the income limits, the rebate amount, or introduce new conditions based on prevailing economic conditions, inflation rates, or the government’s fiscal policy. For example, the government may increase the upper limit for the Section 87A rebate in future assessment years, or it could modify the cap on the rebate amount.
Hence, it is vital for taxpayers to stay updated on the latest tax policies when preparing their tax returns. Before filing your return for any assessment year, always verify the current rebate eligibility, taxable income thresholds, and applicable limits to ensure you benefit from the most up-to-date provisions.
Conclusion
Section 87A is a powerful tool for reducing your tax liability, especially for individuals with a taxable income of ₹5,00,000 or less. By ensuring you meet the eligibility requirements and planning your tax-saving strategies effectively, you can maximize the benefits of this rebate. In light of potential changes for FY 2025-26 (Assessment Year 2026-27), it is important to stay informed about updates to income limits or rebate amounts. Using platforms like TaxBuddy can make the filing process easier, ensuring accurate claims and maximizing your tax savings.
For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? Yes, TaxBuddy offers both self-filing and expert-assisted plans for ITR filing. The self-filing option is perfect for individuals who are comfortable with the filing process and prefer handling their own taxes using TaxBuddy's platform. On the other hand, for those who need assistance, TaxBuddy also provides expert-assisted plans, where tax professionals guide you through the entire process, ensuring accurate filing and compliance with all tax laws.
Q2. Which is the best site to file ITR? TaxBuddy is considered one of the best platforms for filing ITR. It offers a seamless, user-friendly experience that incorporates AI-driven tools to ensure error-free filing. The platform allows you to choose between self-filing and expert-assisted services, making it suitable for both experienced filers and those seeking professional assistance. Its easy-to-navigate interface, real-time updates, and accurate calculations make it a top choice for filing ITR.
Q3. Where to file an income tax return? You can file your ITR through the official Income Tax Department website at incometax.gov.in, or you can use platforms like TaxBuddy for a smoother and more guided experience. TaxBuddy simplifies the entire process, offering tools for both self-filing and expert-assisted filing, ensuring that you can file your return accurately and on time.
Q4. Who is eligible for the Section 87A rebate? The Section 87A rebate is available to resident individuals whose taxable income does not exceed ₹5 lakh under the old tax regime or ₹12 lakh under the new tax regime (effective from FY 2025-26). It provides a direct reduction in your tax liability, making it a valuable benefit for low-income taxpayers.
Q5. Can NRIs claim the Section 87A rebate? No, the Section 87A rebate is only available to resident individuals. Non-resident Indians (NRIs) are not eligible for this rebate, regardless of their income level.
Q6. Is the Section 87A rebate applicable to senior citizens? Yes, senior citizens (aged 60-80) are eligible for the Section 87A rebate, provided their taxable income does not exceed ₹5 lakh under the old tax regime. However, for super senior citizens (aged 80 and above), the rules may vary, and they may be eligible for different tax benefits.
Q7. Does the rebate apply to all types of income? No, the Section 87A rebate does not apply to income that is taxed at special rates, such as capital gains, income from lottery winnings, or income from specific investments. It only applies to general taxable income, which includes salary, business income, etc.
Q8. How can TaxBuddy’s app help with Section 87A? TaxBuddy’s app helps you determine your eligibility for the Section 87A rebate by automatically calculating your total taxable income and suggesting the best tax regime for you. It ensures that you claim the rebate accurately, helping you maximize your savings while filing your return with no errors.
Q9. What is the maximum rebate under Section 87A in the new tax regime? In the new tax regime, the maximum rebate under Section 87A is ₹60,000 for taxpayers whose taxable income is up to ₹12 lakh. This rebate helps lower the tax burden for those with modest taxable incomes, making it a key benefit in the new tax regime.
Q10. What is the rebate under the old tax regime? Under the old tax regime, the maximum rebate under Section 87A is ₹12,500 for individuals with taxable income up to ₹5 lakh. This rebate directly reduces the tax payable, providing significant relief to individuals within this income bracket.
Q11. Is there any deadline for claiming the Section 87A rebate? The Section 87A rebate can be claimed when filing your ITR, provided it is done before the filing deadline for the respective assessment year. It is crucial to file your return on time to ensure you receive the rebate, as delays in filing may result in losing eligibility for the rebate.
Q12. How does TaxBuddy ensure I get the maximum rebate? TaxBuddy helps you maximize your Section 87A rebate by analyzing your financial situation and suggesting the best tax regime for your circumstances. It ensures that all eligible rebates, deductions, and exemptions are accurately claimed, helping you reduce your tax liability and optimize your overall tax position.
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