What Is Section 87A Rebate and How to Maximize It in FY 2024-25
- Farheen Mukadam
- Jul 24
- 9 min read
Section 87A of the Income Tax Act provides a rebate to individuals with taxable income below a specified threshold. This rebate directly reduces the income tax liability, making it one of the most valuable provisions for taxpayers in India, especially for individuals in the lower income brackets. For the Financial Year (FY) 2024-25 (Assessment Year 2025-26), Section 87A continues to provide this benefit, although certain changes in tax slabs and the introduction of the new tax regime may impact its applicability. Let us understand Section 87A in detail, including its workings in both the old and new tax regimes, how to maximize the rebate, eligibility requirements, and example calculations. By understanding this provision, you can ensure that you're taking full advantage of the available tax-saving opportunities.
Table of Contents:
What Is Section 87A Rebate?
Section 87A of the Income Tax Act offers a rebate to individuals whose taxable income is less than a specified amount. The rebate reduces the tax liability directly, making it a valuable benefit for lower-income earners. For the FY 2024-25, individuals with taxable income of up to ₹5,00,000 are eligible for this rebate. It is designed to provide relief to taxpayers in the lower income groups, ensuring that they are not overburdened by taxes, thus encouraging financial inclusion and participation in the formal economy.
Under Section 87A, the rebate is available as a direct reduction in the final tax liability. For example, if your total tax liability is ₹12,000 and you qualify for the Section 87A rebate, the rebate amount (up to ₹12,500) will be deducted, resulting in zero tax liability.
What Section 87A Works in the Old Tax Regime
In the old tax regime, where taxpayers can avail themselves of deductions such as HRA (House Rent Allowance), 80C investments, and others, the Section 87A rebate is applied after calculating the total taxable income and applicable tax according to the tax slabs. If the taxable income after applying the deductions is below ₹5,00,000, the taxpayer is eligible for the full rebate.
For instance, under the old tax regime, let’s say your taxable income after deductions (like 80C, HRA, etc.) comes out to ₹4,80,000. In this case, you are eligible for a rebate of ₹12,500, which would be deducted from the total tax liability. If your tax liability is lower than ₹12,500, you won't have to pay any tax, and the remaining rebate amount won't be refunded.
Is Section 87A Rebate Available Under the New Tax Regime?
The new tax regime, introduced in FY 2020-21, provides lower tax slabs but eliminates most deductions and exemptions, including those under Section 80C, HRA, and others. However, for taxpayers opting for the new tax regime, Section 87A is still applicable. This means that individuals with taxable income below ₹7,00,000 can still avail themselves of the ₹25,000 rebate under the new tax regime.
Under the new tax regime, the tax rates are lower, but you cannot claim deductions. Despite the absence of deductions, Section 87A remains beneficial for taxpayers with income under ₹7,00,000, as it allows them to significantly reduce or eliminate their tax liability.
In essence, the Section 87A rebate remains the same for both regimes, offering tax relief to individuals with lower taxable income.
How to Maximize Section 87A Rebate in FY 2024-25
Maximizing the Section 87A rebate primarily hinges on reducing your taxable income to below ₹7,00,000. To do this, you can utilize the following strategies:
Invest in Tax-Saving Instruments: Under the old tax regime, contributing to tax-saving instruments like Public Provident Fund (PPF), National Savings Certificates (NSC), and Employee Provident Fund (EPF) can help reduce your taxable income. The maximum amount you can claim under Section 80C is ₹1.5 lakh.
Claim HRA and Other Deductions: If you are in the old tax regime, claiming House Rent Allowance (HRA), interest on home loans, and deductions under Section 80D (insurance premiums) can reduce your taxable income.
Consider the Standard Deduction: The new tax regime offers a standard deduction of ₹50,000, which can further reduce your taxable income, helping you qualify for the Section 87A rebate.
Review Income Structure: Ensure that you are claiming all eligible deductions to bring your taxable income under ₹7,00,000. This way, you can maximize the rebate under both regimes.
Eligibility for Section 87A Rebate
To qualify for the Section 87A rebate, you must meet the following criteria:
Income Criteria: Your taxable income must be ₹7,00,000 or below.
Individual Status: The rebate is available only to individual taxpayers, including Hindu Undivided Families (HUFs) and Associations of Persons (AOPs).
Age Limit: There is no specific age limit to claim this rebate, meaning both young and senior taxpayers can benefit as long as they meet the income threshold.
The rebate amount is fixed at ₹12,500, and if your tax liability is lower than this amount, you will pay zero tax, but no refunds will be provided for the difference.
Example Calculations for Section 87A Rebate
Let’s consider an example to understand how Section 87A works:
Scenario 1: Taxable income of ₹4,80,000 under the old regime
Tax Liability: ₹4,80,000 * 5% = ₹24,000
Section 87A Rebate: ₹12,500
Final Tax Payable: ₹24,000 - ₹12,500 = ₹11,500
Scenario 2: Taxable income of ₹4,50,000 under the new regime
Tax Liability: ₹4,50,000 * 5% = ₹22,500
Section 87A Rebate: ₹12,500
Final Tax Payable: ₹22,500 - ₹12,500 = ₹10,000
In both scenarios, the Section 87A rebate significantly reduces the tax liability, demonstrating its impact for taxpayers in the lower income group.
Important Tips for Claiming Section 87A Rebate
Ensure Your Taxable Income is Below ₹5,00,000: The rebate is only available if your taxable income is under ₹5,00,000. Use deductions like 80C, 80D, and the standard deduction to lower your taxable income.
Opt for the Right Tax Regime: Choose the tax regime that maximizes your benefits. While the new tax regime offers lower rates, the old tax regime provides more opportunities for deductions.
File Early to Avoid Penalties: Filing your tax returns early ensures that you can correctly apply for the rebate without rushing at the last moment.
Conclusion
Section 87A provides valuable tax relief for individuals with taxable income below ₹5,00,000, allowing them to reduce their overall tax liability. Whether you choose the old or new tax regime, you can take full advantage of this rebate by managing your income, utilizing available deductions, and filing your tax returns correctly. Maximizing this rebate can lead to significant savings, so it’s crucial to understand its workings and apply the relevant deductions accordingly. To ensure a smooth and accurate filing process, using platforms like TaxBuddy can help simplify tax filing. 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. The self-filing option is designed for individuals who are familiar with the tax filing process and prefer to file their returns independently, with the platform providing the necessary tools and guidance. On the other hand, TaxBuddy’s expert-assisted plans offer the support of qualified tax professionals who will guide you through the entire filing process, ensuring that your return is filed accurately and efficiently. This flexibility ensures that taxpayers, regardless of their level of expertise, can find a suitable option to file their returns.
Q2: Which is the best site to file ITR?
The best site to file your ITR depends on your personal preferences and needs. While the official Income Tax Department portal provides the necessary resources for filing, platforms like TaxBuddy offer an added layer of convenience, error checking, and personalized support. TaxBuddy's user-friendly interface makes the filing process simpler and faster, with both self-filing and expert-assisted options available. The platform also ensures compliance with all regulations and maximizes your deductions, which makes it an excellent choice for most taxpayers.
Q3: Where to file an income tax return?
You can file your ITR on the official Income Tax Department portal atincometax.gov.in, or opt for platforms like TaxBuddy that offer a simplified filing experience. TaxBuddy's platform streamlines the process by offering both self-filing and expert-assisted options. Taxpayers can choose to either file independently using the tools provided or seek professional help for accurate and efficient filing.
Q4: Can I file my ITR after the deadline without penalties?
No, filing after the deadline results in penalties and interest on any unpaid taxes. If you miss the original or extended deadline, you can still file a belated return, but penalties will be imposed under Section 234F. Additionally, you will be required to pay interest on any unpaid taxes under Sections 234A, 234B, and 234C of the Income Tax Act. It’s advisable to file within the deadline to avoid unnecessary charges.
Q5: What happens if I fail to file ITR within the extended deadline?
If you miss the extended ITR filing deadline, you can still file a belated return until December 31, 2025, for FY 2024-25 (Assessment Year 2025-26). However, filing after the extended deadline incurs penalties, and your refund will be delayed compared to those who file on time. Penalties can be as high as ₹5,000 depending on the delay, and you will also be charged interest on any unpaid taxes. Thus, filing as early as possible remains important.
Q6: How do I check the status of my income tax refund?
To check the status of your income tax refund, visit the Income Tax Department's e-filing portal and log in with your PAN and assessment year details. You can track the status of your refund through the “Income Tax Refund Status” section. If you filed through TaxBuddy, the platform provides integrated tracking tools that allow you to check your refund status directly through your TaxBuddy dashboard, ensuring ease of access and support throughout the process.
Q7: Does TaxBuddy assist with TDS credit verification?
Yes, TaxBuddy assists with verifying TDS credits before filing your ITR. One of the key features of TaxBuddy is its ability to check if your TDS credits are accurately reflected in your return. This is crucial, as discrepancies between the TDS records and the filed return can cause delays in refund processing. TaxBuddy ensures that all TDS data is correctly reflected, which helps avoid errors and speed up the overall filing process.
Q8: How long does it take for TaxBuddy to process an ITR filing?
The processing time for ITR filings on TaxBuddy depends on the complexity of the return. For simple returns, the process can be completed in a matter of hours, as TaxBuddy’s platform is designed to expedite the filing process. If expert assistance is required due to complex tax situations, such as for businesses or those with multiple sources of income, the filing may take a little longer. Regardless, TaxBuddy ensures that all returns are filed accurately and efficiently, helping to speed up the entire process.
Q9: What if I file ITR after the extended deadline?
If you file your ITR after the extended deadline of September 15, 2025, for FY 2024-25, you can still file a belated return by December 31, 2025. However, this will attract penalties and interest, and your refund will be delayed compared to those who file on time. The penalties can reach up to ₹5,000, and interest will be charged on any outstanding taxes. Therefore, it is advisable to file as soon as possible to avoid additional costs.
Q10: Are there penalties for errors in my ITR filing?
Yes, there are penalties for errors in your ITR filing, especially if they result in underreported income or unpaid taxes. These penalties can include fines, interest on any taxes owed, and a delay in your refund processing. To avoid these penalties, it is important to file an accurate return. Using TaxBuddy can help ensure that your ITR is filed correctly by providing error-checking tools and expert assistance to prevent common mistakes.
Q11: Can I make corrections in my ITR after filing?
Yes, if you realize there are mistakes in your ITR after submitting it, you can file a revised return under Section 139(5) of the Income Tax Act. The revised return can be filed before the end of the assessment year. If you discover an error after the assessment year ends, you may not be able to correct it through a revised return. Filing a revised return ensures that any mistakes are corrected, minimizing penalties and interest on unpaid taxes.
Q12: Does TaxBuddy support all tax regimes for ITR filing?
Yes, TaxBuddy supports both the old and new tax regimes for ITR filing. It helps you determine the best option based on your income and financial goals, whether you choose the old tax regime with exemptions and deductions or the new, simplified tax regime with reduced tax rates. TaxBuddy’s platform makes it easier to compare both regimes and choose the one that provides the most benefit, ensuring you maximize your tax savings while remaining fully compliant with tax laws.
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