Zero Tax up to ₹12 Lakh: How the New Regime Rebate Works
Updated for FY 2025-26 (AY 2026-27)
One of the biggest Budget 2025 announcements: under the new regime, income up to ₹12 lakh is effectively tax-free for FY 2025-26. Here is exactly how — and why it is not a "₹12 lakh slab" but a rebate.
It's the Section 87A rebate, not a nil slab
You still calculate tax using the normal slabs. But if your taxable income is up to ₹12,00,000, Section 87A gives a rebate equal to that tax — so your final liability becomes zero.
On a ₹12 lakh taxable income the slab tax would be ₹60,000 (₹20,000 + ₹40,000). The 87A rebate wipes out the full ₹60,000.
Why salaried people get ₹12.75 lakh tax-free
Salaried individuals first subtract the ₹75,000 standard deduction. So a salary of ₹12,75,000 becomes a taxable income of ₹12,00,000 — which the rebate makes tax-free. That is where the popular "₹12.75 lakh" figure comes from.
Check if your salary lands in the tax-free zone.
Calculate now →What happens just above ₹12 lakh? (Marginal relief)
If your taxable income is slightly over ₹12 lakh, you don't suddenly owe the full ₹60,000+. Marginal relief ensures your tax never exceeds the amount of income above ₹12 lakh. For example, at ₹12.10 lakh taxable, the tax is capped at roughly ₹10,000 (plus cess), not ₹61,500. Our calculator applies this automatically.
Important: this is the New regime only
In the Old regime, the 87A rebate limit is only ₹5 lakh. If you want the ₹12 lakh benefit, you must be on the new regime — which means giving up HRA, 80C and other deductions. Whether that is worth it depends on your numbers. Compare both regimes here.