For FY 2025-26, a salaried individual pays zero income tax up to about Rs 12.75 lakh under the default new regime — Rs 12 lakh covered by the Section 87A rebate (up to Rs 60,000) plus a Rs 75,000 standard deduction. Beyond any slab-based threshold, several incomes are permanently exempt under Section 10 — agricultural income, PPF interest, EPF withdrawal after 5 years, gratuity up to Rs 20 lakh and life-insurance maturity — and are never added to taxable income at all.
Some income is exempt (Section 10 — never taxed, e.g. PPF interest, agricultural income). Separately, income below the rebate/slab threshold is taxable in law but attracts nil tax after the 87A rebate. This page covers both — exempt income and the zero-tax limit.
Zero Tax Under the New Regime — How It Works
The new regime is the default from FY 2023-24. Budget 2025 raised the Section 87A rebate so that a resident individual with net taxable income up to Rs 12 lakh pays nil tax. Salaried employees add the Rs 75,000 standard deduction, so gross salary up to roughly Rs 12.75 lakh is effectively tax-free.
| Taxpayer | Effective nil-tax income | Regime | How |
|---|---|---|---|
| Salaried individual | Rs 12.75 lakh | New (default) | Rs 12L via 87A + Rs 75k std deduction |
| Pensioner (salary head) | Rs 12.75 lakh | New (default) | Same standard deduction applies |
| Business / others | Rs 12 lakh | New (default) | 87A rebate; no standard deduction |
| Old regime (basic exemption) | Rs 2.5 lakh | Old (optional) | Basic exemption; 87A rebate only to Rs 5L |
The 87A rebate does not offset tax on special-rate income — STCG u/s 111A or LTCG u/s 112A are taxed separately even within the Rs 12L threshold.
If part of your income is short-term capital gains (Section 111A) or long-term capital gains (Section 112A), that portion is taxed at its special rate and cannot be wiped out by the 87A rebate — even if your total income is under Rs 12 lakh. Only "normal" slab income enjoys the full rebate.
Section 10 — Permanently Exempt Incomes
Section 10 lists incomes excluded from total income — true exemptions, not deductions, so they are never added to taxable income. Most core exemptions (agricultural income, gratuity, leave encashment, PPF/EPF, LIC maturity) apply irrespective of regime; a few salary allowances such as HRA and LTA are available only in the old regime.
| Income Type | Section | Limit / Condition | Regime |
|---|---|---|---|
| Agricultural income | 10(1) | Fully exempt; partial integration if non-agri income exceeds basic exemption | Both |
| Share of HUF income | 10(2) | Member's share of HUF income — fully exempt in the member's hands | Both |
| Leave Travel Allowance (LTA) | 10(5) | Twice in a 4-year block; actual travel cost within India | Old only |
| Gratuity (death/retirement) | 10(10) | Up to Rs 20 lakh for private sector; fully exempt for govt employees | Both |
| Leave encashment on retirement | 10(10AA) | Up to Rs 25 lakh for non-govt employees; fully exempt for govt | Both |
| Commuted pension | 10(10A) | Fully exempt for govt employees; part-exempt for others | Both |
| PPF interest & maturity | 10(11) | Fully exempt — no cap on interest or maturity amount | Both |
| EPF withdrawal | 10(12) | Exempt after 5 continuous years of service | Both |
| HRA exemption | 10(13A) | Least of: actual HRA, 50%/40% of salary, rent paid minus 10% of salary | Old only |
| Life-insurance maturity | 10(10D) | Exempt if premium ≤ 10% of sum assured; death claim always exempt | Both |
| Scholarships & awards | 10(16) | Fully exempt — educational scholarships, notified state awards | Both |
| Minor's clubbed income | 10(32) | Rs 1,500 exemption per minor child after clubbing with parent | Both |
Section numbers are of the Income-tax Act, 1961; the Income-tax Act, 2025 renumbers many provisions from AY 2026-27, but the exemptions and limits themselves are unchanged. "Both" = available in old and new regimes.
Not sure which of your income is exempt vs taxable?
Get ITR Filing Help →Agricultural Income — Exempt but Partially Integrated
Agricultural income from land in India is fully exempt under Section 10(1) — farming income, rent on agricultural land and income from a farm house used for agriculture. But a partial integration rule applies: if your non-agricultural income exceeds the basic exemption, agricultural income is added on top to determine the slab rate, so it can push your other income into a higher bracket even though it is not itself taxed.
PPF enjoys Exempt-Exempt-Exempt status: the deposit is deductible under Section 80C (old regime), the annual interest is exempt under Section 10(11), and the maturity amount is fully exempt — with no cap on the interest or maturity proceeds.
How the Rs 12.75 Lakh Zero-Tax Works
For a salaried person on the new regime with a Rs 12,75,000 gross salary and no special-rate income, the standard deduction brings taxable income to Rs 12 lakh, and the 87A rebate cancels the computed tax entirely.
Salaried · new regime
Business · new regime
Cross Rs 12 lakh even by a rupee (non-salaried) and marginal relief applies so the extra tax cannot exceed the extra income. Use our income-tax calculator or old vs new regime calculator to see your exact figure.
New regime usually wins if
- Your gross salary is at or under ~Rs 12.75 lakh
- You claim few deductions (little 80C, no home loan)
- You want the simplest, lowest-slab option
Old regime may win if
- You claim large 80C + 80D + home-loan interest
- You get sizeable HRA and pay high rent
- Your total exemptions/deductions exceed the rate benefit
HRA & LTA — Exempt Only in the Old Regime
House Rent Allowance is exempt under Section 10(13A) as the least of: actual HRA received, 50% of salary (metro) / 40% (non-metro), or rent paid minus 10% of salary. Leave Travel Allowance under Section 10(5) covers actual travel cost within India, twice in a four-year block. Both are available only under the old regime; under the new regime the salaried person's main relief is the Rs 75,000 standard deduction.
- PPF passbook / interest statement
- EPF withdrawal & service-period proof
- Gratuity / leave-encashment computation
- LIC maturity certificate (10(10D) check)
- Rent receipts & landlord PAN (HRA)
- Agricultural income records
- Form 16 with exempt allowances
- Regime chosen before filing
- Exempt income entered in Schedule EI
Even fully exempt income — agricultural income, PPF interest, dividends within limits, HUF share — should be disclosed in the Exempt Income (Schedule EI) of your ITR. Omitting large exempt income (especially agricultural income above Rs 5,000) can trigger a mismatch notice.
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