Under the new tax regime for FY 2026-27 (AY 2027-28), eligible normal slab-rate income up to Rs 12 lakh can become tax-free through the Section 87A rebate. For salaried employees, the Rs 75,000 standard deduction can extend this zero-tax point to Rs 12.75 lakh of gross salary. This guide explains the calculation and the marginal relief that prevents a disproportionate tax jump when taxable income moves slightly above Rs 12 lakh.
Answer Engine Summary
Eligible normal slab-rate income of Rs 12 lakh or less can become tax-free under the new regime through the Section 87A rebate of up to Rs 60,000. For salaried employees, the Rs 75,000 standard deduction can make gross salary up to Rs 12.75 lakh tax-free when no special-rate income changes the result. If taxable income is slightly above Rs 12 lakh, marginal relief can cap income tax before cess at the excess over Rs 12 lakh.
Last updated: 10 August 2026
Educational information only. Verify applicability with official guidance and qualified professionals where needed.
New tax regime slabs for FY 2026-27 (AY 2027-28)
The Finance Act 2025 revised the new tax regime slabs effective from FY 2025-26 (continuing in FY 2026-27). The slab structure is: Taxable income 0–4 lakh: 0% tax. Rs 4–8 lakh: 5% (tax = Rs 20,000). Rs 8–12 lakh: 10% (tax = Rs 40,000). Rs 12–16 lakh: 15%. Rs 16–20 lakh: 20%. Rs 20–24 lakh: 25%. Above Rs 24 lakh: 30%.
Salaried employees also get a standard deduction of Rs 75,000 under the new regime (raised from Rs 50,000 in Budget 2024). So a gross salary of Rs 12.75 lakh gives a taxable income of exactly Rs 12 lakh — right at the zero-tax line.
- Standard deduction (new regime): Rs 75,000
- Zero tax threshold: taxable income up to Rs 12 lakh
- For salaried: zero tax on gross salary up to Rs 12.75 lakh
- Section 87A rebate amount: Rs 60,000
- Rebate available only if total income does not exceed Rs 12 lakh
Zero Tax on Rs 12L: How the 87A Rebate Works
New regime slab breakdown and rebate for Rs 12 lakh income
Exact tax calculation at Rs 12 lakh income
Taxable income: Rs 12,00,000. Step-by-step calculation: First Rs 4 lakh: 0% = Rs 0. Next Rs 4 lakh (Rs 4L–8L): 5% = Rs 20,000. Next Rs 4 lakh (Rs 8L–12L): 10% = Rs 40,000. Total computed tax: Rs 60,000.
Section 87A rebate: Income Tax Act Section 87A, as amended by Finance Act 2025, provides a rebate of up to Rs 60,000 for individuals whose taxable income does not exceed Rs 12 lakh. Since computed tax (Rs 60,000) ≤ maximum rebate (Rs 60,000), the rebate is applied in full.
Tax payable after rebate: Rs 60,000 − Rs 60,000 = Rs 0. Health and Education Cess (4%): Rs 0. Final tax liability: Rs 0.
Practical Example: Tax at exactly Rs 12 lakh — complete working
Gross salary: Rs 12,75,000 | Standard deduction: Rs 75,000 | Taxable income: Rs 12,00,000 | Computed tax: Rs 60,000 | 87A rebate: Rs 60,000 | Cess (4%): Rs 0 | Final tax: Rs 0.
Marginal relief when taxable income crosses Rs 12 lakh
The Section 87A rebate itself is available only when the eligibility conditions are met, including the Rs 12 lakh total-income limit. However, the new regime also provides marginal relief for a resident individual whose normal slab-rate income is slightly above that limit. The relief prevents the income tax payable before cess from exceeding the amount by which total income exceeds Rs 12 lakh.
At taxable income of Rs 12,10,000, normal slab tax is Rs 61,500: Rs 20,000 on the Rs 4–8 lakh slab, Rs 40,000 on the Rs 8–12 lakh slab and Rs 1,500 on the next Rs 10,000. Because the income exceeds Rs 12 lakh by only Rs 10,000, marginal relief reduces income tax before cess to Rs 10,000. Cess of 4% is Rs 400, giving an estimated final tax of Rs 10,400, subject to eligibility and any special-rate income.
Marginal relief tapers as income rises. Once the normal slab tax is no longer higher than the excess over Rs 12 lakh, regular slab tax applies. This is why crossing Rs 12 lakh does not automatically create the full Rs 60,000-plus tax jump described in the earlier version of this article.
Practical Example: Rs 12.1 lakh taxable income — marginal relief calculation
Normal slab tax: Rs 61,500 | Excess income over Rs 12L: Rs 10,000 | Marginal relief: Rs 51,500 | Tax after relief: Rs 10,000 | Cess at 4%: Rs 400 | Estimated final tax: Rs 10,400.
New regime vs old regime at Rs 12 lakh salary
At Rs 12 lakh taxable income from normal slab-rate sources, the new-regime tax can be Rs 0 after the rebate. Under the old regime, the result depends on salary deductions and exemptions; Rs 8.5 lakh of taxable income produces approximately Rs 85,800 including 4% cess. Compare using your actual eligible deductions rather than assuming either regime is always better.
However, if your gross salary is above Rs 12.75 lakh (making taxable income above Rs 12 lakh under the new regime), the comparison changes and depends on your actual deductions. Use the RupeeKit Income Tax Calculator (Old vs New Regime) to compare your specific situation.
Which deductions are available in the new regime?
The new regime generally does not allow the employee's own NPS deductions under Sections 80CCD(1) or 80CCD(1B). The extra Rs 50,000 self-contribution deduction under Section 80CCD(1B) belongs to the old-regime deduction set, so it should not be subtracted in a new-regime Rs 12 lakh calculation.
An eligible employer contribution to NPS can be deducted under Section 80CCD(2). Under the new regime, the statutory percentage limit can be up to 14% of salary as defined for this provision. This is different from an employee making a voluntary NPS contribution, and the actual salary structure and employer contribution must be checked.
Verify all deduction details at the official Income Tax Department website (incometax.gov.in) or use the e-Filing portal (eportal.incometax.gov.in) for AY 2027-28 ITR-related information.
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Frequently Asked Questions
Is Rs 12 lakh salary completely tax-free in FY 2026-27?
Eligible normal slab-rate income up to Rs 12 lakh can become tax-free under the new regime after the Section 87A rebate. Above Rs 12 lakh the full rebate is not available, but marginal relief can prevent a disproportionate tax jump when total income is only slightly higher. Special-rate income can change the result.
What is the Section 87A rebate for FY 2026-27?
Section 87A provides a tax rebate of up to Rs 60,000 for individuals (resident) whose total income does not exceed Rs 12 lakh in FY 2026-27, under the new tax regime. This was increased from Rs 25,000 (Rs 7 lakh threshold) to Rs 60,000 (Rs 12 lakh threshold) in Union Budget 2025. The official source is Section 87A of the Income Tax Act, 1961.
What if I earn Rs 12,50,000 — how much tax do I pay under new regime?
At Rs 12.5 lakh taxable income from normal slab-rate sources, normal slab tax is Rs 67,500. The excess over Rs 12 lakh is Rs 50,000, so marginal relief can reduce income tax before cess to Rs 50,000. Add 4% cess of Rs 2,000 for an estimated final tax of Rs 52,000, subject to resident-individual eligibility and any special-rate income.
Is the Rs 12 lakh threshold applicable to old regime also?
No. Section 87A in the old regime provides a rebate of up to Rs 12,500 for income up to Rs 5 lakh only. The Rs 60,000 rebate for income up to Rs 12 lakh is exclusively available under the new tax regime for FY 2026-27.
Does capital gains income count toward the Rs 12 lakh threshold?
This is a nuanced point. Long-term and short-term capital gains (LTCG/STCG) are included in total income for checking the Rs 12 lakh threshold. However, the rebate is calculated differently — special-rate capital gains are excluded from the rebate computation. As per IT rules, 87A rebate cannot be applied to offset the tax on LTCG on equity (taxed at 12.5%) or STCG on equity (20%). This is a complex area — verify at incometax.gov.in or consult a CA for your specific situation.
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