No Income Tax Up to ₹12 Lakh Under New Tax Regime 2026-27

If you're a salaried employee earning ₹12 lakh annually, here's the best news for FY 2026-27: you may not have to pay a single rupee in income tax. Thanks to the enhanced Section 87A rebate under the new tax regime, resident individuals with income up to ₹12 lakh now enjoy zero tax liability—the highest tax-free threshold in India's income tax history. This guide explains exactly how this works, who qualifies, and how you can claim this benefit when filing your Income Tax Return (ITR) for Assessment Year 2027-28.

Understanding the ₹12 Lakh Tax-Free Limit: How Section 87A Rebate Works

Under the new tax regime for FY 2026-27, the Section 87A rebate of ₹60,000 ensures zero tax liability for taxable income up to ₹12 lakh. This represents a dramatic shift from previous years and makes the new regime far more attractive than the old regime for middle-income taxpayers.

The tax slabs under the new regime are: nil up to ₹4 lakh, 5% on ₹4-8 lakh, 10% on ₹8-12 lakh, 15% on ₹12-16 lakh, 20% on ₹16-20 lakh, 25% on ₹20-24 lakh, and 30% above ₹24 lakh. When you calculate tax on exactly ₹12 lakh of income, the liability comes to ₹60,000 (₹20,000 from the 5% slab plus ₹40,000 from the 10% slab). The Section 87A rebate of ₹60,000 cancels all of this tax, bringing your final tax payable to zero.

The Union Budget 2026 did not announce any changes to tax slabs or basic exemption limits, and the slabs announced in the previous budget remain in force for FY 2026-27 (AY 2027-28). This continuity provides stability for tax planning and compliance.

Use our Income Tax Calculator to instantly compute your exact tax liability under both the new and old tax regimes for FY 2026-27.

₹12.75 Lakh Tax-Free Income for Salaried Employees: The Standard Deduction Benefit

Salaried individuals enjoy an even higher effective tax-free threshold. Salaried individuals receive a standard deduction of ₹75,000, making gross salary up to ₹12.75 lakh effectively tax-free under the new tax regime for FY 2026-27.

Here's how this works:

• Gross Salary: ₹12,75,000
• Less: Standard Deduction (Section 16): ₹75,000
• Taxable Income: ₹12,00,000
• Tax on ₹12 lakh: ₹60,000
• Less: Section 87A Rebate: ₹60,000
• Final Tax Payable: ₹0

A standard deduction of Rs.75,000 is available to a taxpayer in the new regime, and therefore a salaried taxpayer will not be required to pay any tax where income before standard deduction is less than or equal to Rs.12,75,000. This was officially confirmed in the CBDT FAQs on Budget 2026.

The standard deduction in the new tax regime is ₹75,000, increased from ₹50,000, and this higher deduction provides additional tax savings, especially for those in higher income tax slabs. The old regime offers only ₹50,000 as standard deduction for salaried employees.

Who Can Claim the ₹75,000 Standard Deduction?

The ₹75,000 standard deduction under the new tax regime is available to:

• Salaried employees receiving salary income
• Pensioners receiving pension income
• Family pensioners (subject to specific limits)

Self-employed individuals, freelancers, and business owners do not qualify for the standard deduction as they do not receive salary or pension income.

Section 87A Rebate for FY 2026-27: Complete Eligibility and Calculation

For FY 2025–26 (AY 2026–27), the maximum rebate is Rs. 60,000 under the new tax regime for eligible taxpayers with total income up to Rs. 12 lakh. This is a significant enhancement from earlier years.

Eligibility Criteria for Section 87A Rebate

To claim the Section 87A rebate under the new tax regime for FY 2026-27, you must meet these conditions:

1. Residential Status: You must be a resident individual as per the Income Tax Act. Non-resident Indians (NRIs) cannot claim this rebate.
2. Total Income Limit: Your total taxable income after all deductions must not exceed ₹12 lakh under the new regime (or ₹5 lakh under the old regime).
3. Tax Regime Choice: You must opt for the new tax regime (Section 115BAC / Section 202 under Income Tax Act 2025). The old regime has a lower rebate limit.
4. Regular Income: The rebate applies to regular income only. Certain special-rate incomes like capital gains under Sections 111A and 112A do not qualify.

Section 87A Rebate: New Regime vs Old Regime Comparison

Parameter	Old Tax Regime	New Tax Regime
Maximum Rebate Amount	₹12,500	₹60,000
Income Threshold	Up to ₹5 lakh	Up to ₹12 lakh
Effective Tax-Free Salary (for salaried)	₹5.50 lakh	₹12.75 lakh
Standard Deduction for Salaried	₹50,000	₹75,000
Marginal Relief Available	No	Yes
Applicable Section (Income Tax Act 2025)	Section 156	Section 156

Under the new tax regime, a rebate of Rs.60,000 is allowed for an income up to Rs. 12 lakhs, while under the old regime, a rebate of Rs. 12,500 is allowed for an income up to Rs. 5 lakhs. The difference is substantial and favors the new regime for most middle-income taxpayers.

Income Tax Slabs for FY 2026-27: What You Need to Know

There are no changes to the income tax slabs under the new Budget 2026, and the tax rates continue exactly as announced earlier in the Finance Act 2025. The new tax regime slabs for FY 2026-27 (Assessment Year 2027-28) are:

New Tax Regime Slabs – FY 2026-27

• Up to ₹4,00,000: Nil (0%)
• ₹4,00,001 – ₹8,00,000: 5%
• ₹8,00,001 – ₹12,00,000: 10%
• ₹12,00,001 – ₹16,00,000: 15%
• ₹16,00,001 – ₹20,00,000: 20%
• ₹20,00,001 – ₹24,00,000: 25%
• Above ₹24,00,000: 30%

Under the new regime, the basic exemption limit is ₹4 lakh, with the highest tax rate of 30%. In addition to the basic tax, a 4% Health and Education Cess is levied on the total tax amount.

Tax Calculation Example: ₹12 Lakh Income

Let's calculate tax for a salaried individual earning ₹12 lakh (taxable income after standard deduction):

• On first ₹4 lakh: Nil = ₹0
• On next ₹4 lakh (₹4-8 lakh): 5% = ₹20,000
• On next ₹4 lakh (₹8-12 lakh): 10% = ₹40,000
• Total Tax: ₹60,000
• Less: Section 87A Rebate: ₹60,000
• Tax before Cess: ₹0
• Add: Health & Education Cess @ 4%: ₹0
• Final Tax Payable: ₹0

Calculate your tax liability across different income levels using our Income Tax Calculator to plan your finances better.

The Catch: Capital Gains and Special Rate Income Exclusions

While the ₹12 lakh tax-free benefit sounds attractive, there's an important exclusion you must know. The Section 87A rebate is available to resident individuals with total income up to ₹12 lakh, but the rebate does not apply to capital gains taxed at special rates (Sections 111A/112A).

This means:

• Short-term capital gains on equity shares/mutual funds taxed at 15% under Section 111A do not qualify for the rebate
• Long-term capital gains on equity shares/mutual funds exceeding ₹1.25 lakh, taxed at 12.5% under Section 112A, do not qualify for the rebate
• Even if your total income is within ₹12 lakh, these special-rate gains will still attract tax separately

Example: Salary + Capital Gains Scenario

Suppose you have:

• Salary Income (after standard deduction): ₹10,00,000
• Long-term Capital Gains on equity shares: ₹2,50,000
• Total Income: ₹12,50,000

In this case, your salary income of ₹10 lakh will be taxed at regular slab rates and may qualify for rebate. However, the LTCG of ₹2.5 lakh will be taxed separately—₹1.25 lakh is exempt, and the remaining ₹1.25 lakh will be taxed at 12.5% = ₹15,625 plus cess. The Section 87A rebate will not eliminate this capital gains tax.

Use our Capital Gain Calculator to compute tax on your capital gains accurately, and our Stock Profit Calculator to track your equity investment returns.

How to Claim Section 87A Rebate When Filing ITR for AY 2027-28

Claiming the Section 87A rebate is straightforward when you file your Income Tax Return. The rebate is automatically calculated in most ITR forms if your income qualifies.

Step-by-Step Process:

1. Choose Your Tax Regime: Ensure you select the new tax regime when filing your ITR. The new regime is the default option from FY 2023-24 onwards.
2. Calculate Total Income: Compute your total taxable income after claiming allowable deductions (standard deduction, NPS employer contribution, family pension deduction, etc.).
3. Verify Income Limit: Confirm that your total income does not exceed ₹12,00,000.
4. Automatic Rebate Calculation: The ITR utility will automatically compute the Section 87A rebate and deduct it from your tax liability.
5. Claim Refund if TDS Deducted: If your employer deducted TDS during the year but your final tax is nil due to the rebate, you can claim a full refund.

To verify your TDS deductions and tax credits, use our Form 26AS / TDS Fetch Tool to download your Annual Information Statement (AIS) and Form 26AS instantly.

Important Documents Required

• Form 16 (for salaried employees)
• Salary slips for the entire financial year
• Bank statements showing salary credits
• Investment proofs (if claiming old regime)
• Form 26AS / Annual Information Statement

Analyze your bank transactions effortlessly with our Bank Statement Analyser to ensure accurate income reporting.

Marginal Relief: What Happens If Your Income Exceeds ₹12 Lakh Slightly?

One of the biggest improvements in the new tax regime is the introduction of marginal relief for incomes just above ₹12 lakh. Marginal relief is now available in the new regime, meaning earning slightly over ₹12 Lakhs no longer triggers a sudden, catastrophic tax spike.

Under marginal relief, if your income exceeds ₹12 lakh by a small amount, the additional tax payable is capped to ensure you're not worse off than someone earning exactly ₹12 lakh. The formula ensures that your effective tax rate gradually increases rather than jumping suddenly.

Example: Income of ₹12.50 Lakh

Without marginal relief, if your income is ₹12.50 lakh, the tax would be:

• Tax on ₹12.50 lakh: ₹67,500
• No rebate available (income exceeds ₹12 lakh)
• Tax payable: ₹67,500 + 4% cess = ₹70,200

With marginal relief, the tax is restricted so that you retain more of the additional ₹50,000 earned above ₹12 lakh. This mechanism makes the new regime far more taxpayer-friendly.

Income Tax Act 2025: New Section Numbers for FY 2026-27

The Income Tax Act, 2025, came into force on 1 April 2026, replacing the Income Tax Act, 1961. While the tax rates, slabs, and rebate amounts remain unchanged for FY 2026-27, the section numbers have been renumbered.

Key section changes relevant to the ₹12 lakh tax-free benefit:

• Section 87A (rebate under old Act): Now Section 156 under Income Tax Act 2025
• Section 115BAC (new tax regime under old Act): Now Section 202 under Income Tax Act 2025
• Section 16 (standard deduction under old Act): Provisions now under Chapter V of the new Act

Under the Income-tax Act, 2025, the Section 87A rebate transitions to Section 156 for Tax Year 2026–27, and eligible resident individuals can receive a rebate of up to ₹60,000 under the new tax regime if their total income is up to ₹12 lakh. The practical effect remains identical—only the section references have changed.

Old Regime vs New Regime: Which is Better for ₹12 Lakh Income?

For most taxpayers earning up to ₹12 lakh, the new tax regime is significantly more beneficial. Here's why:

• Zero tax under new regime vs potential tax liability under old regime even with deductions
• Higher standard deduction: ₹75,000 vs ₹50,000
• Simpler compliance: No need to collect investment proofs for 80C, 80D, HRA, etc.
• Default option: Employers calculate TDS under new regime by default

The old regime makes sense only if you have substantial deductions exceeding ₹5-6 lakh (like home loan interest, HRA, 80C investments, medical insurance, etc.).

Example Comparison: ₹12 Lakh Salary

New Tax Regime:

• Gross Salary: ₹12,75,000
• Standard Deduction: ₹75,000
• Taxable Income: ₹12,00,000
• Tax: ₹60,000 (fully offset by Section 87A rebate)
• Final Tax: ₹0

Old Tax Regime (assuming ₹2 lakh in 80C, 80D, HRA):

• Gross Salary: ₹12,75,000
• Standard Deduction: ₹50,000
• 80C Deduction: ₹1,50,000
• HRA Exemption: ₹30,000
• 80D (Medical): ₹25,000
• Taxable Income: ₹10,20,000
• Tax on ₹10.2 lakh: ~₹1,12,500
• Less 87A rebate: ₹12,500
• Final Tax: ~₹1,00,000 + cess

The new regime clearly wins for this income level. Use our Income Tax Calculator to compare both regimes for your specific income and deduction scenario.

FAQs: No Income Tax on ₹12 Lakh Under New Tax Regime 2026-27

Is ₹12 lakh income completely tax-free under the new tax regime for FY 2026-27?

Yes, resident individuals with taxable income up to ₹12 lakh pay zero tax under the new tax regime for FY 2026-27 due to the Section 87A rebate of ₹60,000. The tax calculated on ₹12 lakh income is exactly ₹60,000 (₹20,000 on ₹4-8 lakh at 5% plus ₹40,000 on ₹8-12 lakh at 10%), which is fully offset by the rebate, resulting in nil tax liability.

What is the maximum tax-free salary for salaried employees under the new regime in FY 2026-27?

Salaried employees can earn up to ₹12.75 lakh as gross salary without paying any income tax under the new regime in FY 2026-27. After deducting the ₹75,000 standard deduction available to salaried individuals, the taxable income becomes ₹12 lakh, which qualifies for the full Section 87A rebate of ₹60,000, bringing tax liability to zero.

What is Section 87A rebate and who is eligible for it in FY 2026-27?

Section 87A provides a tax rebate to reduce or eliminate tax liability for eligible taxpayers. For FY 2026-27 under the new tax regime, resident individuals with total income up to ₹12 lakh can claim a rebate of up to ₹60,000. Under the old tax regime, the rebate is limited to ₹12,500 for income up to ₹5 lakh. Non-resident Indians (NRIs) are not eligible for this rebate.

Are there any income types excluded from the Section 87A rebate benefit?

Yes, the Section 87A rebate does not apply to certain types of income taxed at special rates. Income from capital gains under Section 111A (short-term capital gains on equity) and Section 112A (long-term capital gains on equity) are excluded from the rebate calculation. This means if your total income is ₹12 lakh but includes special-rate capital gains, you may still have tax liability on those gains despite qualifying for the rebate on regular income.

Has the tax slab structure changed for FY 2026-27 under the new regime?

No, the Union Budget 2026 did not announce any changes to the income tax slabs for FY 2026-27. The slabs announced in Budget 2025 remain in force: nil up to ₹4 lakh, 5% on ₹4-8 lakh, 10% on ₹8-12 lakh, 15% on ₹12-16 lakh, 20% on ₹16-20 lakh, 25% on ₹20-24 lakh, and 30% above ₹24 lakh. The standard deduction and Section 87A rebate limits also remain unchanged.

Conclusion: Maximize Your Tax Savings Under the New Regime

The ₹12 lakh tax-free threshold under the new tax regime for FY 2026-27 represents one of the most taxpayer-friendly provisions in India's income tax history. With the enhanced Section 87A rebate of ₹60,000 and the ₹75,000 standard deduction for salaried employees, earning up to ₹12.75 lakh without paying a rupee in tax is now a reality for millions of Indian taxpayers.

Whether you're a salaried professional, pensioner, or small business owner, understanding these provisions and choosing the right tax regime can save you thousands of rupees annually. Make sure to file your ITR accurately and claim all eligible benefits.

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