“Income up to Rs. 12 lakh is tax-free” is the line everyone has heard — but the mechanics are widely misunderstood. It is not a higher slab; it is a rebate. This guide lays out the exact new-regime slabs for FY 2026-27, how the Rs. 12 lakh (Rs. 12.75 lakh for salaried) zero-tax point works, and the limits people miss.
The new regime slabs for FY 2026-27
These slab rates apply under the new regime (Section 115BAC, renumbered Section 202 under the Income-tax Act, 2025). They are unchanged from FY 2025-26.
| Total income | Rate |
|---|---|
| Up to Rs. 4,00,000 | Nil |
| Rs. 4,00,001 – Rs. 8,00,000 | 5% |
| Rs. 8,00,001 – Rs. 12,00,000 | 10% |
| Rs. 12,00,001 – Rs. 16,00,000 | 15% |
| Rs. 16,00,001 – Rs. 20,00,000 | 20% |
| Rs. 20,00,001 – Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
A 4% health and education cess applies on the tax. Surcharge applies above Rs. 50 lakh, capped at 25% in the new regime.
How Rs. 12 lakh becomes zero tax: it’s a rebate
Look at the slabs and a person earning Rs. 12 lakh appears to owe tax in the 5% and 10% bands. The reason they pay nothing is Section 87A: a rebate of up to Rs. 60,000 that wipes out the calculated tax for taxable income up to Rs. 12 lakh.
For a salaried person, the Rs. 75,000 standard deduction sits on top. A gross salary of Rs. 12.75 lakh reduces to Rs. 12 lakh taxable, which the rebate then makes zero — so the effective tax-free salary is Rs. 12.75 lakh.
What happens just above Rs. 12 lakh: marginal relief
Without protection, crossing Rs. 12 lakh by a little would trigger tax on a large chunk of income at once. Marginal relief prevents that: if your income slightly exceeds Rs. 12 lakh, the extra tax payable cannot be more than the income above Rs. 12 lakh.
Example: if income exceeds Rs. 12 lakh by Rs. 10,000, marginal relief restricts the tax to roughly that Rs. 10,000 — so you never pay disproportionately more for earning a little extra.
The limit people miss: the rebate is not on everything
The Section 87A rebate applies only to income charged at the normal slab rates. It does not apply to special-rate income — most importantly long-term capital gains under Section 112A (and items like online-gaming income). So a person at Rs. 11 lakh of salary with Rs. 2 lakh of LTCG cannot assume the whole Rs. 13 lakh is covered — the LTCG is taxed separately at its own rate.
New vs old regime — which should you choose?
The new regime is the default and is usually better for those who do not claim large deductions, thanks to lower rates and the Rs. 60,000 rebate. The old regime can still win where deductions are substantial — broadly, when HRA, home-loan interest under Section 24(b) and Section 80C/80D together exceed roughly Rs. 4 lakh.
- New regime suits: salaried with few investments, early-career earners, anyone wanting simplicity.
- Old regime may suit: those with a home loan, high HRA, and maxed-out 80C/80D.
Run both before filing. And remember: file on time — a late return for AY 2026-27 can lock you into the new regime by default. See our ITR filing AY 2026-27 due dates guide at /blog/itr-filing-ay-2026-27-due-dates.
How the regime choice fits the bigger picture
The new regime under Section 115BAC (Section 202 in the new Act) sets the slab rates; Section 87A delivers the Rs. 12 lakh zero-tax point through a rebate; the standard deduction lifts that to Rs. 12.75 lakh for the salaried; and marginal relief smooths the threshold. The choice between regimes is then a deduction-by-deduction comparison made each year before you file. For the wider context of the new Act, see /blog/income-tax-act-2025-explained.
Key takeaways
- New-regime slabs run from Nil (up to Rs. 4 lakh) to 30% (above Rs. 24 lakh).
- Income up to Rs. 12 lakh is tax-free via the Rs. 60,000 Section 87A rebate.
- With the Rs. 75,000 standard deduction, salaried tax-free income is Rs. 12.75 lakh.
- The rebate does not apply to LTCG or other special-rate income.
- The new regime is default; compare with the old regime if you have large deductions.
Frequently asked questions
Is income up to Rs. 12 lakh really tax-free? Yes, in the new regime. A Section 87A rebate of up to Rs. 60,000 reduces the tax on taxable income up to Rs. 12 lakh to zero.
What is the tax-free limit for salaried people? Rs. 12.75 lakh — the Rs. 12 lakh rebate threshold plus the Rs. 75,000 standard deduction available in the new regime.
What are the new regime slab rates? Nil up to Rs. 4 lakh, 5% to Rs. 8 lakh, 10% to Rs. 12 lakh, 15% to Rs. 16 lakh, 20% to Rs. 20 lakh, 25% to Rs. 24 lakh, and 30% above Rs. 24 lakh.
Does the 87A rebate apply to capital gains? No. The rebate applies only to income at normal slab rates. Special-rate income such as long-term capital gains under Section 112A is not eligible.
What is marginal relief? A protection that ensures, if your income slightly exceeds Rs. 12 lakh, the additional tax does not exceed the income earned above Rs. 12 lakh.
Which is better, the new or old regime? The new regime usually wins for those with few deductions. The old regime can be better when HRA, home-loan interest and 80C/80D deductions together are large — compare both before filing.
12 lakh tak tax free kaise hota hai? New regime me Section 87A ke tahat Rs. 60,000 tak ki rebate milti hai, jisse Rs. 12 lakh tak ki taxable income par tax zero ho jaata hai.
Is the new regime the default? Yes, the new regime is the default for FY 2025-26 onwards. You can opt for the old regime while filing if it is more beneficial.
Not sure which regime saves you more?
The right regime depends entirely on your deductions, and the gap can be tens of thousands of rupees. Regikart’s CA & CS team runs the comparison and files under the better option. Reach us at +91 70444 94804 or [email protected], or see our income tax services at /income-tax-services.
About the author
CA & CS Team
Reviewed by Regikart at Regikart. Want to discuss this in the context of your business?
