In the Union Budget 2025, the government introduced significant changes that provide relief to taxpayers, including increasing the income rebate under Section 87A from ₹25,000 to ₹60,000. The basic income exemption limit has also been raised to ₹4 lakh. However, individuals earning less than ₹4 lakh or between ₹4 lakh and ₹12 lakh are still required to file their Income Tax Returns (ITR) to avoid falling under the tax net. Here’s a breakdown of the rules.
Budget 2025 Brings Tax Relief
The Budget 2025 has raised the income threshold for receiving a rebate under Section 87A, allowing taxpayers with annual incomes up to ₹12 lakh to pay no taxes under the new tax regime. This change will be effective from the next financial year, starting April 1, 2025. Additionally, the basic income exemption limit has been increased from ₹3 lakh to ₹4 lakh.
These changes will ensure that individuals with annual earnings up to ₹4 lakh are not required to pay taxes, and they won’t need to file an ITR. But, does this exemption mean people earning between ₹4 lakh and ₹12 lakh can skip filing their ITR? Let’s explore.
Filing ITR for Claiming Section 87A Rebate
The new rebate under Section 87A, which has been increased to ₹60,000, applies to taxpayers earning less than ₹12 lakh annually (excluding income from special sources like capital gains). However, to claim this rebate, individuals must file their ITR. According to tax experts, even if you earn between ₹4 lakh and ₹12 lakh and are not required to pay tax due to the rebate, it is mandatory to file an ITR to claim the benefit.
Tax consultant Abhishek Mundada explained, “Filing an ITR is compulsory if you wish to claim the rebate under Section 87A. Those earning between ₹4 lakh and ₹12 lakh must file an ITR to qualify for this rebate.”
When is Filing ITR Necessary, Even with Low Income?
Certain situations require individuals to file their ITR, even if their income is below the basic exemption limit. These situations, as specified under Section 139 of the Income Tax Act, include:
- Owning foreign assets or being a beneficial owner.
- Depositing over ₹1 crore in current/savings accounts within a year.
- Incurred expenses over ₹2 lakh on foreign travel.
- Electricity consumption exceeding ₹1 lakh in a year.
- Business sales exceeding ₹60 lakh in a year.
- Gross receipts in profession exceeding ₹10 lakh in a year.
- TDS/TCS over ₹25,000 (₹50,000 for senior citizens).
Even if your income is below ₹4 lakh, these scenarios may still require you to file an ITR.
What Happens if You Don’t File ITR?
If you earn more than ₹4 lakh but less than ₹12 lakh and fail to file an ITR, the Income Tax Department may issue a notice. However, taxpayers can still claim the rebate available under Section 87A in response to the notice. There may also be penalties for non-filing. While there used to be a penalty under Section 271F for non-filing, this has been replaced with a late fee system.
The late fee is ₹1,000 if your total income is up to ₹5 lakh and ₹5,000 if your income exceeds ₹5 lakh. Additionally, interest at a rate of 1% per month will be charged on the outstanding tax amount until the return is filed.
While Budget 2025 brings good news for taxpayers with higher rebate thresholds and an increased exemption limit, filing an ITR remains mandatory for individuals earning between ₹4 lakh and ₹12 lakh, even if they don’t owe any tax. To claim the Section 87A rebate and avoid penalties, ensure timely filing of your ITR.
