Section 87A Rebate: Maximize Tax Savings & Avoid Scrutiny in ITR
- Asharam Swain
- Jun 4
- 9 min read
Section 87A of the Income Tax Act provides a rebate to resident individuals, effectively reducing their tax liability and allowing eligible taxpayers to save on their income tax. This rebate is designed to offer relief to low and middle-income earners by lowering the overall tax burden. However, recent changes in tax slabs and regimes have altered how this rebate applies, especially with the introduction of the new tax regime. Understanding what Section 87A entails, its applicability under different tax regimes, and how to correctly claim it is essential for maximizing tax savings. This guide breaks down the key provisions of Section 87A, explains recent changes for FY 2025-26, and outlines best practices for filing Income Tax Returns (ITR) to claim the rebate without triggering scrutiny. It also highlights common pitfalls and the role of platforms like TaxBuddy in ensuring accurate compliance and optimized tax benefits.
Table of Contents
What is Section 87A Rebate?
Section 87A of the Income Tax Act offers a valuable tax rebate to resident individuals whose total income is below a specified threshold. This rebate allows individuals to reduce their tax liability, meaning they either pay less tax or, in some cases, no tax at all. The government revises the rebate amount and the income threshold periodically, typically during the Union Budget announcement, to reflect inflation and changes in tax slabs. The purpose of Section 87A is to provide direct tax relief to lower-income individuals, enabling them to retain more of their earnings. This provision ensures that those in the lower income brackets are not overburdened by taxes, enhancing their disposable income.
The exact eligibility criteria and rebate amount may change depending on the financial year and the applicable tax regime. For example, in the current tax regime for FY 2024-25, individuals with taxable income below ₹12 lakh can avail themselves of this rebate. This directly impacts the overall tax liability, particularly for middle-income groups who may benefit the most from such provisions.
Is Section 87A Allowed in the New Tax Regime?
Under the new tax regime, which was introduced as an alternative to the old regime, taxpayers can benefit from reduced tax rates but at the cost of losing most of the exemptions and deductions available under the old tax regime. As per current provisions, the Section 87A rebate is not available to those opting for the new tax regime. This means that even if a taxpayer's income falls below the prescribed limit of ₹12 lakh, they will not be able to claim the rebate under the new tax regime.
Taxpayers must decide whether the benefits of lower tax rates under the new regime outweigh the potential savings from exemptions, deductions, and rebates available in the old tax regime. For individuals with income close to or under ₹12 lakh, opting for the old tax regime with Section 87A can be more beneficial, as they can reduce their tax liability significantly.
How Section 87A Works in the Old Tax Regime
In the old tax regime, Section 87A serves as a direct tax rebate against the taxpayer's calculated tax liability. This rebate is available for taxpayers whose total income does not exceed ₹12 lakh for FY 2024-25. The maximum rebate amount under this section is ₹25,000.
For example, if an individual has a total tax liability of ₹25,000 or less, the rebate can fully offset the tax amount, resulting in zero tax payable. However, if the tax liability exceeds ₹25,000, the rebate will be capped at ₹25,000, meaning the taxpayer will still have to pay the remaining balance.
It is essential that taxpayers apply this rebate after utilizing all the eligible deductions and exemptions under sections like 80C, 80D, etc. These deductions help lower the taxable income, ensuring the individual qualifies for the rebate. Thus, for taxpayers with incomes near ₹12 lakh, this rebate can significantly reduce their overall tax burden.
Recent Changes in Section 87A for FY 2025-26
The government has recently announced several revisions to Section 87A for FY 2025-26, particularly aimed at easing the tax burden on middle-income individuals. The income limit for claiming the rebate has been raised to ₹12 lakh, up from ₹5 lakh in earlier years. This change makes a larger group of taxpayers eligible for the rebate.
In addition, the maximum rebate has been increased to ₹25,000, providing more relief to individuals. These revisions align with the increased basic exemption limit and revised tax slab rates announced in the Union Budget 2025. However, these revisions apply only to taxpayers who choose the old tax regime, further emphasizing the choice between the two tax regimes and the impact of opting for one over the other.
How to Maximize Your Tax Savings Using Section 87A
To fully benefit from Section 87A and maximize tax savings, taxpayers should consider the following strategies:
Opt for the old tax regime: If your income is under ₹12 lakh, and you are eligible for other deductions like 80C or 80D, choosing the old tax regime will allow you to claim Section 87A.
Utilize deductions: Ensure you claim all eligible deductions under sections like 80C, 80D, etc., to reduce your taxable income below the ₹12 lakh threshold, thereby qualifying for the rebate.
Verify correct tax computation: Double-check that the tax calculations are accurate and that the rebate is applied properly.
Consider expert services: Use tax planning tools or consult tax experts to assess whether opting for the old regime with Section 87A is more financially beneficial compared to the new regime.
File your returns on time: Ensure timely and accurate filing of tax returns, as delays or errors can affect your eligibility for the rebate and result in penalties.
By implementing these strategies, individuals can maximize their tax savings and ensure compliance with the Income Tax Department’s requirements.
Common Mistakes to Avoid to Prevent Scrutiny
Several common mistakes can prevent taxpayers from benefiting fully from Section 87A. These include:
Opting for the new tax regime: Taxpayers who mistakenly choose the new tax regime and expect to claim the rebate will be disqualified from Section 87A.
Not applying eligible deductions: Failing to reduce taxable income through eligible deductions under sections like 80C before claiming the rebate can disqualify you from the benefit.
Errors in tax computation: Incorrectly calculating the tax payable, which leads to missing or incorrectly applying the rebate, can lead to overpayment or delayed processing.
Ignoring notices: Not verifying tax returns or ignoring notices from the Income Tax Department can result in the disallowance of the rebate.
Delayed filing or non-verification of returns: Late filing or failure to verify returns within the specified period can lead to invalid claims and penalties.
To avoid these pitfalls, taxpayers should ensure their tax filings are accurate, timely, and consistent with all requirements set by the Income Tax Department.
How to Accurately File Your ITR to Claim Section 87A Rebate
Filing your Income Tax Return (ITR) accurately to claim the Section 87A rebate involves several key steps:
Choose the correct tax regime: Ensure that you select the old tax regime if you are eligible to claim the rebate and other deductions.
Accurate reporting of income and deductions: Enter all your income and deductions correctly. Ensure that your taxable income is under ₹12 lakh to qualify for the rebate.
Apply the rebate: In the tax computation section of the return, ensure that Section 87A is applied correctly. If using online platforms like TaxBuddy, the system will auto-calculate and apply the rebate for you.
Double-check figures: Verify all entries against your Form 26AS and other financial documents to ensure accuracy.
E-verification: After filing, ensure that your return is e-verified for it to be accepted by the Income Tax Department.
Using automated platforms like TaxBuddy can significantly simplify this process. TaxBuddy offers tools that automatically calculate your tax liability, apply rebates, and guide you through the filing process efficiently, ensuring that you don't miss out on any potential savings.
Role of TaxBuddy in Maximizing Tax Savings and Ensuring Compliance
TaxBuddy plays an essential role in helping taxpayers maximize their tax savings, including claims related to the Section 87A rebate. Leveraging advanced AI-powered tools, TaxBuddy auto-fills income tax forms with precise and accurate data, significantly reducing the risk of human error. The platform offers detailed, step-by-step guidance to help taxpayers select the most beneficial tax regime based on their individual financial situation. It automatically computes tax liabilities, factoring in all eligible deductions and rebates to ensure optimal tax planning. TaxBuddy also cross-verifies your return information against official records such as Form 26AS, preventing discrepancies that might otherwise lead to notices or penalties. Beyond automation, the platform provides expert support for filing returns efficiently and managing any income tax notices that may arise, offering peace of mind throughout the filing process. By using TaxBuddy, taxpayers can confidently maximize their benefits while remaining fully compliant with the tax laws, ensuring a smooth, hassle-free tax filing experience.
Conclusion
Section 87A rebate offers significant relief to eligible taxpayers under the old tax regime, particularly for middle-income earners. Staying informed about its applicability, recent updates, and filing requirements can maximize tax savings. Careful tax planning and accurate filing are essential to avoid scrutiny and penalties. Utilizing digital solutions such as TaxBuddy streamlines this process by providing automated assistance, accurate computations, and expert guidance. This ensures taxpayers fully benefit from Section 87A while maintaining compliance with tax regulations. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
Frequently Asked Question (FAQs)
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides flexible plans including both self-filing options for taxpayers comfortable managing their returns and expert-assisted services for those seeking professional guidance. This dual approach ensures users can choose the level of support that suits their needs, including help with complex Section 80C deductions and notices.
Q2. Which is the best site to file ITR?
The best site depends on your filing requirements. TaxBuddy stands out due to its authorized status by the Income Tax Department, user-friendly interface, AI-powered auto-fill features, and dedicated expert support, making it ideal for accurate filings and quick responses to tax notices.
Q3. Where to file an income tax return?
Income Tax Returns can be filed directly on the official Income Tax e-filing portal or through authorized intermediaries like TaxBuddy. TaxBuddy simplifies filing by guiding taxpayers through the process, verifying deductions, and providing assistance in case of notices or errors.
Q4. Who is eligible for deductions under Section 80C?
Any individual or Hindu Undivided Family (HUF) with investments or payments in specified instruments such as Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Life Insurance Premiums, ELSS mutual funds, and principal repayment of home loan can claim deductions under Section 80C up to the prescribed limit.
Q5. Can missing documentation for Section 80C investments lead to penalties?
Yes, failure to provide adequate proof of investments claimed under Section 80C can result in disallowance of the deduction and penalties under the Income Tax Act. Maintaining proper receipts and certificates is essential for compliance.
Q6. How can I file a revised return to correct Section 80C deduction errors?
You can file a revised return under Section 139(5) within the assessment year if you discover any mistake or omission in your original return, including Section 80C deductions. Using platforms like TaxBuddy can make filing revised returns straightforward and error-free.
Q7. What penalties apply for incorrect or inflated claims under Section 80C?
Penalties under Section 270A range from 50% to 200% of the tax on the under-reported amount for misreporting or willful evasion. Interest under Sections 234B and 234C may also apply for delayed or short payment of tax.
Q8. What should I do if I receive a notice for Section 80C deduction errors?
Carefully review the notice, collect all required supporting documents, and respond through the Income Tax e-filing portal before the deadline. Filing a revised return if necessary and seeking expert assistance from TaxBuddy can help resolve the issue effectively.
Q9. Can I claim Section 80C deductions for investments made in my spouse's name?
Deductions can be claimed only for investments made in your own name or jointly with your spouse where applicable. Duplicate claims for the same investment by both spouses are not permitted and may lead to disallowance.
Q10. How does TaxBuddy assist in avoiding errors in Section 80C claims?
TaxBuddy’s platform offers AI-powered auto-fill, data reconciliation with Form 26AS and AIS, and expert review to ensure deductions under Section 80C are claimed accurately. It also alerts users about missing documents and guides them through the correct filing process.
Q11. Is verification of ITR necessary after filing Section 80C claims?
Yes, verification of the filed return is mandatory within 30 days. An unverified return is considered invalid, which can lead to processing delays and potential notices from the tax department.
Q12. How long does the Income Tax Department take to process returns with Section 80C deductions?
Processing times vary but returns with correct documentation and no discrepancies generally complete within a few weeks. Returns flagged for deduction mismatches or errors may trigger scrutiny and take longer. Using TaxBuddy can help minimize errors and speed up processing.
Related Posts
See All
As the extended deadline for filing Income Tax Returns (ITRs) for taxpayers exempt from tax audit provisions approaches on September 15,...
Comments