On a salary of ₹12 lakh in FY 2026-27 (AY 2027-28), your income tax under the New regime is ₹0 - the Section 87A rebate wipes it out. The Old regime can't beat zero (you'd pay ₹1,63,800 under it with only the standard deduction), so the New regime is the clear choice.
₹12 lakh salary - tax at a glance
| Particulars | Amount |
|---|---|
| Gross salary | ₹12,00,000 |
| Tax - New regime (incl. cess) | ₹0 |
| Tax - Old regime, standard deduction only | ₹1,63,800 |
| Recommended regime | New (saves ₹1,63,800) |
| Break-even deduction | - (New is ₹0, unbeatable) |
| Monthly in-hand (New regime) | ₹1,00,000 |
How the tax is calculated (New regime)
Taxable income after the ₹75,000 standard deduction = ₹11,25,000. It falls into these slabs:
| Slab · rate | Tax |
|---|---|
| Up to ₹4,00,000 · 0% | ₹0 |
| ₹4,00,000 – ₹8,00,000 · 5% | ₹20,000 |
| ₹8,00,000 – ₹11,25,000 · 10% | ₹32,500 |
| Tax on slabs | ₹52,500 |
| Rebate u/s 87A | − ₹52,500 |
| Health & Education cess (4%) | ₹0 |
| Total tax (New regime) | ₹0 |
Should you pick the Old or New regime at ₹12 lakh?
Because taxable income after the ₹75,000 standard deduction stays within the ₹12 lakh rebate limit, the new regime brings tax to zero. See how the ₹12 lakh zero-tax band works.
The "₹12 lakh tax-free" headline, and what it actually means for you
When Budget 2025 announced that income up to ₹12 lakh would be tax-free, it was talking about taxable income. For a salaried person the ₹75,000 standard deduction sits on top, which is why a ₹12.75 lakh salary is the real zero-tax ceiling - and why at exactly ₹12 lakh you are comfortably inside it with ₹75,000 to spare. Your take-home is a clean ₹1,00,000 a month before PF, with no TDS at all if your employer's payroll is set up correctly.
For context, this same salary attracted ₹71,500 of tax under the FY 2024-25 slabs. That money - almost ₹6,000 a month - is the biggest single reason a ₹12 lakh earner in 2026 feels richer than one in 2024, and it is worth deliberately directing it somewhere (an SIP, a higher PF contribution, an emergency fund) rather than letting it dissolve into spending.
Careful with the next raise: the ₹12.75-13.46 lakh trap
The zero-tax band has a cliff on the far side. Once taxable income crosses ₹12,00,000 the rebate is withdrawn, and marginal relief only guarantees that your tax will not exceed the amount by which you crossed the line. The result is a band of salary where a raise leaves you with no more money in hand:
| Salary | Taxable income | Tax (New regime) | In hand for the year |
|---|---|---|---|
| ₹12,00,000 (you) | ₹11,25,000 | ₹0 | ₹12,00,000 |
| ₹12,75,000 | ₹12,00,000 | ₹0 | ₹12,75,000 |
| ₹13,00,000 | ₹12,25,000 | ₹26,000 | ₹12,74,000 |
| ₹13,46,000 | ₹12,71,000 | ₹73,480 | ₹12,72,520 |
| ₹13,50,000 | ₹12,75,000 | ₹74,100 | ₹12,75,900 |
A raise from ₹12.75 lakh to ₹13.46 lakh - ₹71,000 more on paper - leaves you with slightly less in hand, because the 4% cess is charged on top of the marginally-relieved tax. This is not a reason to refuse a raise (past ₹13.5 lakh you are ahead again, and salary growth compounds), but it is a very good reason to ask for the increment to be structured as employer NPS contribution or a higher PF match, both of which are deductible in the new regime and keep your taxable income under ₹12 lakh.
You have exactly ₹75,000 of headroom for other income
Taxable income ₹11,25,000 plus ₹75,000 equals the ₹12 lakh limit. So ₹75,000 of FD interest keeps you at zero; ₹1,00,000 of FD interest costs ₹26,000 in tax. If your bank deposits generate more than about ₹6,000 a month in interest, it is worth moving some of that money to instruments whose returns are exempt (PPF, Sukanya Samriddhi) or taxed only on sale (equity or debt mutual funds, where nothing is added to your income until you redeem).
The old regime does not help here either: with only the standard deduction it charges ₹1,63,800, and even a fully loaded set of deductions - ₹1.5 lakh 80C, ₹2 lakh home-loan interest, 80D and NPS, plus a metro HRA exemption - only brings it down to about ₹70,200. Zero is unbeatable.
Your real tax depends on your 80C, HRA, NPS and home-loan interest. Add them and compare both regimes in seconds.
Calculate your exact tax →Frequently asked questions
How much income tax on a ₹12 lakh salary in FY 2026-27?
Under the new regime you pay ₹0 on a ₹12 lakh salary (after the ₹75,000 standard deduction). Under the old regime with only the standard deduction it is ₹1,63,800.
Which tax regime is better for a ₹12 lakh salary?
The new regime - it gives zero tax at this income, which the old regime cannot beat.
What is the monthly in-hand for a ₹12 lakh salary?
About ₹1,00,000 per month under the new regime, before any employer PF or other deductions.
Is a ₹12 lakh salary completely tax-free in FY 2026-27?
Yes. After the ₹75,000 standard deduction your taxable income is ₹11,25,000, inside the ₹12 lakh Section 87A rebate limit, so tax under the new regime is ₹0. Salaried income up to ₹12,75,000 is tax-free the same way.
What happens if I earn ₹12 lakh salary plus ₹1 lakh bank interest?
Taxable income becomes ₹12,25,000, ₹25,000 past the rebate limit. Marginal relief limits your tax to ₹25,000 plus 4% cess, i.e. ₹26,000.
Should I ask for my next raise as employer NPS instead of basic pay?
If the raise would push your taxable income just past ₹12 lakh, yes. Employer NPS under Section 80CCD(2) (up to 14% of basic) is deductible in the new regime and keeps you inside the zero-tax band, whereas the same amount as basic pay could be taxed at nearly 100% in the marginal-relief zone.