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Is it possible to invest less and save more income tax, more than the investment amount, say, invest 5000 and save tax of Rs. 14000/-? Everyone will say “No”. But it is possible in the cases where taxable income slightly higher than Rs. 5 lacs. It is due to provisions related to rebate u/s 87A. It may be a very good tool for tax planning in March.

        Section 87A provides tax rebate upto Rs. 12500/- in cases where taxable income is upto Rs. 5 lacs. Now suppose if a person (not being senior citizen) has taxable income of Rs. 505000/-, tax will be Rs. 14040/- (including Education Cess). Now, if that person invests just Rs. 5000/- for tax saving, his tax will become NIL because taxable income will reach Rs. 5 lacs and tax will be Rs. 12500/- of which he will get full tax rebate u/s 87A. Even if he has done investment upto max investment limit u/s 80C, 80CCD(1B) & 80D, still he may give small donation of Rs. 5000/- in Prime Minister/ Chief Minister National Relief Fund to get 100% deduction of such donation so as to bring the income to tax free.

Therefore, tax planning in March becomes important as the end of financial year reaches and one can assess his estimated income. During the year, such tax planning may not be done as we don’t have exact income figures. However, in March end we may have almost exact figures of annual income. So, calculate your probable income upto 31^st March and see whether it can be brought below Rs. 5 lacs because after 31^st March, you will not be able to invest less and save more income tax in this manner and have to pay tax only and it will be a matter of regret that I would have done this exercise before March.

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Disclaimer : The above post has been prepared to share the scope and implications of Section 87A of the Income Tax Act, 1961. Though every effort has been made to avoid errors or omissions in this document yet any error or omission may creep in. Therefore, it is notified that I shall not be responsible for any damage or loss to any one, of any kind, in any manner therefrom. I shall also not be liable or responsible for any loss or damage to any one in any matter due to difference of opinion or interpretation in respect of the text. On the contrary it is suggested that to avoid any doubt the user should cross check the correct law and the contents with the notified / gazetted materials.