Section 87A Rebate and Section 80C Deductions 

Summary: Section 87A of the Income Tax Act offers a tax rebate to resident individuals with a total taxable income below a certain threshold. A rebate directly reduces the income tax payable, whereas a deduction lowers the total taxable income itself. For the assessment years 2024-25 and 2025-26, an individual with an income of up to ₹5 lakh can claim a rebate of up to ₹12,500. Additionally, for those opting for the new tax regime under Section 115BAC(1A), a rebate of up to ₹25,000 is available if the total income does not exceed ₹7 lakh. This distinction is crucial, as a rebate is applied after tax has been calculated, while deductions are applied before.

In contrast, Section 80C and its related sections, such as 80CCC and 80CCD, provide deductions from the gross total income. These deductions are available to individuals and Hindu Undivided Families (HUFs) for specific investments and expenditures. The maximum combined deduction limit is ₹1.5 lakh. Qualifying investments and payments include contributions to life insurance premiums, provident funds, Public Provident Fund (PPF), certain mutual funds, and tuition fees. Other eligible items include payments for home loan principal, specific bonds, and senior citizen savings schemes. The purpose of these deductions is to encourage long-term savings and investments, effectively reducing the amount of income on which tax is calculated.

Section 87A: Rebate of Income Tax in case of certain individuals.

Section 87A inserted by the Finance Act, 2013, w.e.f.1^st April, 2014, earlier this section 87A was omitted by Finance Bill (No.2) Act, 1967 w.e.f.1^st April, 1968.

From assessment year 2024-25 to 2025-26 this section 87A provides that an assesse being an individual resident in India, whose total (taxable) income does not exceed, as specified in the table below, will be entitle to a deduction from the amount of income tax, on his total taxable income, of an amount equal to 100%of such income tax subject to celling limit, i.e. maximum rebate as specified in the table below:

From assessment year 2024-25 and on words, 1^st proviso to section 87A provides that where the income tax payable on the total income of an assesse is computed u/s 115BAC(1A), and the total income:

(a)  does not exceed Rs. 7,00,000, the assesse will be entitled to a deduction, from the amount  of income tax[ as computed before allowing for deductions under Chapter VIII-A] on his total income with which he is chargeable for any assessment year, of an amount equal to 100% of such income tax or an amount of Rs. 25,000, whichever is less;

(b)   exceeds Rs. 7,00,000 and the income tax payable on such income exceed the amount by which the total income is in excess of Rs.7,00,000, the assesse will be entitled to a deduction from the amount of income tax[as computed before allowing the deductions under Chapter VIII-A] on his total income, of an amount equal to the amount by which the income tax payable on such total income is in excess of the amount by which the total income exceeds Rs.7,00,000.

*From assessment year 204-25, if the taxable income does not exceeds Rs.7,00,000, will get rebate of 100% or Rs. 25,000 whichever is less.

There is a difference between rebate and deduction, i.e. section 80C and 87A. Rebate is always from Tax while deduction is from income.

Deduction from Gross Total Income:                       

Under this Section there are many sub sections like section 80C to 80U. These deduction is to be made from the gross total income. Gross total income means the total income under all the five heads of income, computed in accordance with the provisions of the Income Tax Act.

The gross total income is to be arrived at before allowing any deduction under Chapter VIA and after setting off unabsorbed losses, depreciation, etc. of the earlier years. While deductions under u/s 80C to 80GGC are in respect of certain payments made by assesse. While deduction u/s80IA to 80RRB and 80TTA/80TTB are in respect of certain incomes.

Deductions in respect of certain payments: Section 80C

Section 80C(1) provides that an assesse, being an individuals or a HUF, will be allowed a deduction from gross total income af an amount not exceeding Rs.1,50,000 in respect of amount paid or deposited in the previous year in the specified savings listed in section 80C(2). It may be noted that the aggregate amount of deductions u/s 80C, 80CCC, & 80CCD shall not, in any case, exceed Rs.1,50,000.

Specified savings qualifying for deduction:

Under section 80C (2), following sums paid or deposited by an individual or HUF at any time during the previous year, qualified for deduction u/s 80C(1)

• Life Insurance paid by an individual on his/her life or on life of his/her spouse or, on life of any child, which includes adult children and a married daughter
• By HUF , on life of any member of the family
• Payment of Deferred Annuity.
• Contribution made by an individual to any provident fund,
• Public Provident Fund Scheme -1968
• Recognition Provident Fund
• Approved Superannuation Fund
• Savings Certificates
• Unit Linked Insurance Plan,1971
• Insurance Plan of the LIC Mutual Fund
• Units of Mutual Fund
• Notified pension fund
• Home loan account scheme
• Tuition fees
• Purchase or construction of a residential house
• Equity shares or debentures forming part of any eligible issue of capital approved by the Board
• Subscription to notified bonds
• Senior Citizens Savings Scheme Rules, 2004
• 5 year time deposit

 Deduction in respect of contribution to certain pension funds: Section 80CCC

During the previous year, the assesse has paid or deposited any amount, out of the income chargeable to tax, to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension.

Contribution to pension scheme of Central Government: Section 80CCD :

The assesse is employed by the Central Government on or after 1^st January, 2004 or any other employer, or any other assesse being an individual.

The assesse has in previous year  paid or deposited any amount in his account under a pension scheme notified by the Central Government.