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Income Tax

Is ₹12 Lakh Really Tax-Free? New Regime Worked Examples

Yes. In FY 2026-27, salary up to ₹12.75 lakh pays no tax under the new regime, thanks to the ₹75,000 standard deduction and ₹60,000 rebate.

PN

Written by Priya Nair

Published 18 September 2026·5 min read

On this page9 sections
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Yes, for most salaried people. Under the new tax regime for FY 2026-27, a resident with salary up to ₹12.75 lakh and no other income pays no tax. The ₹75,000 standard deduction brings taxable income down to ₹12 lakh, and the rebate of up to ₹60,000 wipes out the tax on it. Just above that, marginal relief caps your tax at the income over ₹12 lakh.

Key facts for tax year 2026-27

Item Detail
Law Income-tax Act, 2025 (in force from 1 April 2026)
New regime slabs Section 202(1); unchanged by Budget 2026
Standard deduction ₹75,000 or the salary, whichever is less (section 19)
Rebate 100% of tax or ₹60,000, whichever is less, if total income is up to ₹12,00,000 (section 156)
Marginal relief Tax cannot exceed the income above ₹12,00,000 (section 156(2)(b))
Who gets the rebate Resident individuals only
Cess Health and Education Cess at 4%

Slabs and rebate for FY 2026-27

FY 2026-27 is called tax year 2026-27 under the new Act. The new regime is the default, and its slab table sits in section 202(1). Budget 2026 left the slabs, rebate and standard deduction unchanged, and they match the rates for FY 2025-26.

Total income Rate Tax on the full slab
Up to ₹4,00,000 Nil ₹0
₹4,00,001 to ₹8,00,000 5% ₹20,000
₹8,00,001 to ₹12,00,000 10% ₹40,000
₹12,00,001 to ₹16,00,000 15% ₹60,000
₹16,00,001 to ₹20,00,000 20% ₹80,000
₹20,00,001 to ₹24,00,000 25% ₹1,00,000
Above ₹24,00,000 30% —

Tax on exactly ₹12 lakh adds up to ₹60,000, which is why the rebate cap is ₹60,000. The ₹12 lakh test applies to total income after deductions, not to gross salary. Our income tax slabs page covers both regimes and all age groups; the examples below show how the numbers work for a salary.

Example: ₹12 lakh salary

Step Amount
Gross salary ₹12,00,000
Less standard deduction ₹75,000
Total income ₹11,25,000
Tax: 5% of ₹4 lakh + 10% of ₹3.25 lakh ₹20,000 + ₹32,500 = ₹52,500
Rebate under section 156 ₹52,500
Tax payable Nil

Your employer should deduct no TDS on this salary, as long as you have not opted for the old regime.

Example: ₹12.75 lakh salary

Step Amount
Gross salary ₹12,75,000
Less standard deduction ₹75,000
Total income ₹12,00,000
Tax on ₹12 lakh ₹60,000
Rebate ₹60,000
Tax payable Nil

₹12.75 lakh is the highest salary that pays nothing without relying on marginal relief. Employer NPS contributions deducted under section 124 can push the figure higher, since the new regime still allows that deduction.

Just above the limit: marginal relief

Without relief, earning ₹1 over ₹12 lakh would cost you the whole ₹60,000 rebate. Section 156(2)(b) prevents that. If total income exceeds ₹12 lakh, your tax is reduced so that it does not exceed the amount by which your income crosses ₹12 lakh.

Salary of ₹13 lakh

Step Amount
Total income after ₹75,000 deduction ₹12,25,000
Tax at slab rates: ₹60,000 + 15% of ₹25,000 ₹63,750
Income above ₹12 lakh ₹25,000
Marginal relief (₹63,750 − ₹25,000) ₹38,750
Tax after relief ₹25,000
Add 4% cess ₹1,000
Total payable ₹26,000

Without relief, the bill would be ₹66,300 including cess.

Where relief runs out

Relief stops once slab tax falls below the excess income. That happens at a total income of about ₹12,70,588, or a salary of about ₹13,45,588. At a salary of ₹14 lakh, total income is ₹13,25,000 and slab tax is ₹78,750. The excess over ₹12 lakh (₹1,25,000) is larger than the tax, so no relief applies. You pay ₹78,750 plus ₹3,150 cess, or ₹81,900.

You can test your own figures with the income tax calculator.

Income that the rebate does not cover

ItemDetails
Long-term gains on listed shares and equity funds.Section 198 taxes these at 12.5% above ₹1,25,000. Section 198(7) allows the rebate only on tax other than tax on these gains.
Short-term gains on listed shares.Section 196 taxes these at 20%. Section 156(3) limits the rebate to tax at the section 202(1) slab rates, so plan to pay this tax even when your total income is under ₹12 lakh.
Non-residents.Section 156 applies only to individuals resident in India.
Old regime taxpayers.The rebate there is only up to ₹12,500, for total income up to ₹5 lakh (section 156(1)).

Capital gains still count towards total income, so a large gain can take you past ₹12 lakh and cut or cancel the rebate. If you have capital gains, business income or foreign income, a chartered accountant can check the calculation.

Checking your TDS against the result

  1. Confirm with your employer that you are on the new regime for tax year 2026-27. The standard deduction there is ₹75,000; under the old regime it is ₹50,000.
  2. Estimate your total income for the year, including interest and other income you have told your employer about.
  3. Work out slab tax, then apply the rebate or marginal relief as shown above.
  4. Compare the result with the monthly TDS on your payslip multiplied across the year.
  5. If TDS looks too high, ask payroll to recheck the regime flag and the standard deduction.
  6. After the year ends, match your employer’s TDS certificate and your annual tax statement with your own figure before you file.

Our standard deduction guide explains who gets the ₹75,000 and who gets ₹50,000.

Frequently asked questions

Is ₹12 lakh income tax-free in the new regime?

Yes, if you are a resident and your total income after deductions is up to ₹12 lakh. The section 156 rebate of up to ₹60,000 cancels the tax.

Is a ₹12.75 lakh salary tax-free?

Yes, if salary is your only income. The ₹75,000 standard deduction brings total income to ₹12 lakh.

How is income tax calculated on a ₹13 lakh salary under the new regime?

Total income is ₹12,25,000 and slab tax is ₹63,750. Marginal relief cuts this to ₹25,000, and 4% cess brings it to ₹26,000.

What is marginal relief in the new tax regime?

If your total income crosses ₹12 lakh, your tax cannot exceed the amount by which it crosses. Relief ends at a total income of about ₹12.71 lakh.

Does the rebate apply to capital gains?

No. Tax on long-term gains on listed equity sits outside the rebate, and the rebate is limited to tax at slab rates.

Did Budget 2026 change the new regime slabs?

No. The slabs, the ₹60,000 rebate and the ₹75,000 standard deduction are the same as for FY 2025-26.

Sources

Go deeper

Compare tax with live numbers

Income tax slabs, deductions, capital gains and GST — explained for the current financial year, with calculators that do the old-vs-new regime maths for you.

Tax hub Income Tax Slabs

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