Common mistakes when claiming Section 87A rebate include failing to differentiate between Gross and Taxable Income, applying it to special rate incomes (like STCG/LTCG), and missing deadlines. Mistakes also include failing to update ITR filings after tax utility changes, assuming eligibility without verifying the income cap, and miscalculating for the wrong tax regime.
Rebate under Section 87A of the Income Tax Act
Due to technical glitches and incorrect assessment, the Section 87A rebate was mistakenly applied to some special-rate incomes. Subsequent corrections led to fresh tax demands, alarming taxpayers who had previously received refunds or lower dues.
For FY 2025-26 (AY 2026-27), only resident individuals in India are eligible to claim the Section 87A rebate. The total taxable income, after considering all applicable deductions, must not exceed ₹12,00,000 under the new tax regime or ₹5,00,000 under the old tax regime.
One of the common reasons why a claim for refund may be disallowed is because it was not filed in a timely manner.
New tax regime: “The ITR utility does not allow automatic 87A rebate when the total income exceeds Rs 7 lakh includes special rate income like STCG under Section 111A or LTCG under Section 112A. The rebate can only be claimed if the slab-rate income alone is within the Rs 7 lakh limit.
If you did not receive a payment
Other reasons why you may not have received a payment or it is delayed: You were not a CCPC at all times during the 2023 or 2024 tax year. Your 2023 corporation income tax return was filed after July 15, 2024. Your 2024 corporation income tax return was filed after July 15, 2025.
Rebate is a tax reduction available to resident individuals when they earn income within 10% tax slab. Under the new regime, a rebate of Rs.60,000 is allowed for an income up to Rs. 12 lakhs. Under the old regime, a rebate of Rs. 12,500 is allowed for an income up to Rs. 5 lakhs.
There are many reasons why the IRS may be holding your refund.
You can claim exemption from withholding only if both the following situations apply: For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability. For the current year, you expect a refund of all federal income tax withheld because you expect to have no liability.
Section 87A Rebate (New Tax Regime):
The maximum rebate has been increased to ₹60,000 for resident individuals with taxable income up to ₹12,00,000. Due to the standard deduction of ₹75,000 for salaried individuals, the effective no-tax threshold is ₹12,75,000 for salary earners.
For example, if a taxpayer has a gross salary of ₹5 lakh, after applying the standard deduction of ₹50,000, the taxable income is reduced to ₹4.5 lakh. This means the individual can claim a full ₹12,500 rebate under Section 87A, making their final tax payable zero.
It's better to itemize if your total eligible expenses (mortgage interest, state/local taxes up to a limit, charitable donations, medical costs) exceed the Standard Deduction amount for your filing status; otherwise, taking the Standard Deduction is simpler and saves more money. You must choose one method, and the goal is always to reduce your taxable income the most, so compare the totals and pick the larger figure.
From Ay 2026-27 (Fy 2025-26 i.e. current year), by law or finance act, 87A rebate will not be available against special-rate incomes like 111A STCG / 112 / 112A i.e. tax on LTCG under the new regime dueto change in Finance Act, 2025.
Form 10-IEA is a declaration made by the return filers for choosing the 'Opting Out of New Tax Regime'. An Individual, HUF, AOP (not being co-operative societies), BOI or Artificial Juridical Person with business or professional income must submit Form 10-IEA if they wish to pay income tax as per the old tax regime.
Use Form 1040-X, Amended U.S. Individual Income Tax Return, and follow the instructions. You should amend your return if you reported certain items incorrectly on the original return, such as filing status, dependents, total income, deductions or credits.
Entering information inaccurately. Wages, dividends, bank interest, and other income received and that was reported on an information return should be entered carefully.
Different amount: If the refund isn't the amount you expected, you should receive a notice explaining why. If you don't receive a notice or you believe the IRS changed your refund incorrectly, contact the IRS or order a transcript to find out about any IRS changes.
The biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.
Who Is Audited More Often? Oddly, people who make less than $25,000 have a higher audit rate. This higher rate is because many of these taxpayers claim the earned income tax credit, and the IRS conducts many audits to ensure that the credit isn't being claimed fraudulently.
Section 87A provides eligible taxpayers with a full income tax rebate if their total income is below Rs 5 lakh under the old tax regime.
To calculate the rebate under Section 87A, calculate your gross income and subtract the available deductions under Sections 80C to 80U. Now, if your net taxable income is less than ₹5 lakhs as per the old tax regime, you are eligible for a rebate up to ₹12,500 on the tax payable before health and education Cess.
➡️ The Bombay High Court ruled in favor of taxpayers regarding Section 87A rebates, directing the CBDT to amend the e-filing utility for fair tax compliance. ➡️ Tax authorities were instructed to process refunds for taxpayers unfairly denied rebates due to restrictive utility design.