Zero Income Tax up to ₹12 Lakh — How It Works

No. The ₹12 lakh zero-tax is only under the new regime. Under the old regime the Section 87A rebate is ₹12,500 and applies only when total income is up to ₹5 lakh, so only income up to ₹5 lakh is effectively tax-free there. To get the ₹12 lakh benefit you must be in the new regime, which is now the default.

Under the new regime it is up to ₹60,000, available to resident individuals with taxable income up to ₹12,00,000 — enough to make the tax nil at that income. Under the old regime it stays at ₹12,500 for income up to ₹5,00,000. The rebate is capped at the actual tax payable, so you never get more than your computed tax.

It is a rebate threshold, not an exemption limit. The basic exemption under the new regime is ₹4 lakh; tax is computed on the slabs from ₹4 lakh upward, and then the ₹60,000 Section 87A rebate wipes out the tax up to ₹12 lakh of income. The distinction matters for special-rate income such as capital gains, which sits outside the rebate.

Yes. Gross salary ₹12,75,000 minus the ₹75,000 standard deduction (new regime) gives net taxable income of ₹12,00,000. Tax on that is ₹60,000, fully offset by the ₹60,000 Section 87A rebate, so net tax is ₹0. This is the exact Budget 2025 design for salaried taxpayers.

₹75,000 for salaried individuals and pensioners under the new regime (raised from ₹50,000 in Budget 2024). Under the old regime it remains ₹50,000. The higher ₹75,000 deduction is what lifts the salaried zero-tax point from ₹12 lakh of income to ₹12.75 lakh of gross salary.

Yes, but the threshold is total income, not gross receipts. A non-salaried resident individual (for example a professional or business owner under new regime) pays zero tax if total taxable income is ₹12,00,000 or less. They do not get the ₹75,000 standard deduction, which is a salary-only benefit, so their zero-tax point is ₹12 lakh of income rather than ₹12.75 lakh.

For AY 2026-27 the new-regime slabs are: up to ₹4 lakh Nil; ₹4–8 lakh 5%; ₹8–12 lakh 10%; ₹12–16 lakh 15%; ₹16–20 lakh 20%; ₹20–24 lakh 25%; above ₹24 lakh 30%. A 4% Health & Education Cess applies on the tax after rebate, and surcharge applies above ₹50 lakh (capped at 25% in the new regime).

Nil on the first ₹4 lakh, 5% on ₹4–8 lakh = ₹20,000, and 10% on ₹8–12 lakh = ₹40,000, giving ₹60,000 before rebate. The Section 87A rebate of ₹60,000 then reduces it to zero, and with zero tax there is no cess. So the final liability on ₹12,00,000 taxable income is ₹0.

After the ₹75,000 standard deduction, a ₹13 lakh salary (net ₹12.25 lakh) attracts about ₹66,300 including 4% cess; ₹15 lakh salary (net ₹14.25 lakh) about ₹1,01,400; and ₹20 lakh salary (net ₹19.25 lakh) about ₹2,09,300. Above ₹12 lakh taxable income the 87A rebate no longer applies, so tax is charged at slab rates plus cess.

Marginal relief applies. For taxable income slightly over ₹12 lakh, the tax cannot exceed the amount of income above ₹12 lakh. For example at ₹12,10,000 the excess is ₹10,000, so tax is capped at ₹10,000 even though the computed slab tax is higher. This prevents a large jump for crossing the threshold by a small amount; beyond roughly ₹12.75 lakh normal slab tax exceeds the relief and full tax applies.

Roughly up to the point where the normal slab tax equals the income above ₹12 lakh — about ₹12,75,000 of taxable income. Within that narrow band you pay only the excess-over-₹12-lakh amount as tax. Above it, marginal relief no longer helps and you pay the full computed tax plus 4% cess.

Only partly. Special-rate incomes — short-term capital gains taxed at 20% and long-term capital gains at 12.5% — are excluded from the Section 87A rebate. If salary is ₹10 lakh and STCG is ₹3 lakh, the STCG is taxed at 20% with no rebate, even though total income is ₹13 lakh. The rebate offsets only the tax on normal income up to ₹12 lakh.

Yes, if part of it is special-rate income. Because capital gains taxed at special rates fall outside the 87A rebate, a person with, say, ₹9 lakh salary and ₹2 lakh of short-term capital gains can still owe tax on the ₹2 lakh gains at 20%, even though total income is under ₹12 lakh. Only normal-rate income is fully rebate-protected up to ₹12 lakh.

Yes. The new tax regime is the default from AY 2024-25 onward, including AY 2026-27. If you do nothing, you are taxed under the new regime and get the ₹12 lakh zero-tax benefit. To use the old regime — worthwhile only if your deductions are large — you must actively opt in, and salaried taxpayers may need Form 10-IEA to switch.

When your total deductions are large enough that old-regime tax after 80C, 80D, HRA and home-loan interest falls below new-regime tax. This is more likely at higher incomes with a home loan and full 80C/HRA claims. For most salaried people up to ₹12.75 lakh the new regime is simpler and gives zero tax outright — use an old-vs-new calculator to compare your exact figures.