What are Common Mistakes When Calming 87A?

Another common mistake is assuming that Section 87A works the same way under both tax regimes.

The rules have changed over the years, so an explanation that was correct for an earlier assessment year may not be correct for the current one.

I'd also distinguish between:

• total income,
• taxable income,
• income eligible for normal slab rates, and
• income taxed at special rates.

Those distinctions can affect the final tax calculation.

If you're an NRI, there's another reason to be careful: your residential status and the type/source of income can affect how the income is taxed in India. Don't assume that the rules you've seen for a resident individual automatically answer your situation.

For a return you're filing now, I'd use the current Income Tax Department utility and instructions for the relevant assessment year. If there's a significant amount involved or your income includes capital gains, professional tax advice may be worthwhile.

Capital gains are probably where a lot of the confusion comes from.

I had read that if your total income was below the Section 87A threshold, you automatically got the full rebate. That explanation was too simplistic for my situation because I had special-rate income.

The rebate rules have specific conditions, and you can't always assume that every component of your tax liability is treated identically.

I'd recommend checking the calculation in the ITR utility and looking at the tax computation section. See exactly how the taxable income and tax before rebate have been calculated.

Also make sure you're using the correct assessment year. I found several websites showing Section 87A limits from earlier years, and that made things even more confusing.

If your return includes capital gains, dividends, foreign income, or other income with special tax treatment, I'd be especially careful about relying on a simple “income below X = rebate” formula.

The biggest mistake I made was assuming that the Section 87A eligibility limit was the only thing I needed to check.

Your tax regime matters, and the treatment of different types of income can also matter. I initially looked at my total income as one number and didn't separate my normal slab-rate income from income that may have special tax treatment.

Another mistake is confusing taxable income with gross receipts or gross income. The figure relevant for calculating the rebate isn't necessarily the same as the amount that came into your bank account during the year.

I would first calculate your total income according to the applicable ITR rules, then determine which portions are taxed at normal slab rates and which have special rates.

Also check the current-year rules rather than using an old article. The Section 87A limits and rules have changed over time, particularly with changes to the new tax regime.

If the tax utility is showing something different from your manual calculation, I'd investigate the income entries rather than overriding it.

Here are the Do's and Don'ts when claiming the 87A. 

Do's

• You should always check your Income and select your tax regime carefully. 
• Must file your ITR before the due date to get the rebate claim. 
• If you have the capital gains, you can apply for the rebate manually. 

Don'ts 

• Do not get confused by the limits of the new regimes and old regimes. 
• Never forget that the rebate is applied before cess. 
• Non-residents cannot claim a rebate. Only resident individuals are eligible. 

Here are some of the points that the applicant should know while claiming the 87A: 

• Not responding to the Income Tax Department notices
• Not reporting all the income sources. 
• Entering wrong information in the ITR. 
• Failed to file the revised returns. 
• Failed to provide all the supporting documents for the ITR.