No tax up to ₹12 lakh: how the rebate and marginal relief work
Rules for FY 2026-27 · Checked 24 October 2026
In the new regime, if your taxable income is ₹12 lakh or less, a rebate of up to ₹60,000 wipes out your tax. Salaried people also get a ₹75,000 standard deduction, so a salary of up to ₹12.75 lakh is tax-free. Just above ₹12 lakh, marginal relief stops the tax from jumping.
How ₹12.75 lakh becomes zero tax
- Salary ₹12,75,000 minus the ₹75,000 standard deduction = ₹12,00,000 taxable.
- Slab tax: nothing on the first ₹4 lakh, 5% of the next ₹4 lakh (₹20,000), 10% of the next ₹4 lakh (₹40,000) = ₹60,000.
- The rebate covers up to ₹60,000, so the tax due is zero, and there is no cess either.
What happens just above ₹12 lakh
Without help, earning ₹1 over ₹12 lakh would cost you ₹60,000 in tax. Marginal relief prevents that: the tax cannot be more than the income above ₹12 lakh.
For example, a salary of ₹13 lakh gives taxable income of ₹12.25 lakh. The slab tax is ₹63,750, but marginal relief cuts it to ₹25,000, the amount above ₹12 lakh. With 4% cess you pay ₹26,000. Marginal relief stops helping at about ₹12.7 lakh of taxable income (₹13.45 lakh salary).
| Salary | Taxable income | Tax (with cess) |
|---|---|---|
| ₹12,75,000 | ₹12,00,000 | ₹0 |
| ₹13,00,000 | ₹12,25,000 | ₹26,000 |
| ₹15,00,000 | ₹14,25,000 | ₹97,500 |
| ₹18,00,000 | ₹17,25,000 | ₹1,50,800 |
| ₹20,00,000 | ₹19,25,000 | ₹1,92,400 |
| ₹25,00,000 | ₹24,25,000 | ₹3,19,800 |
What the rebate does not cover
- Capital gains taxed at special rates, such as gains on shares and equity funds. If you have ₹10 lakh salary and ₹2 lakh of equity gains, the rebate cancels the tax on your salary but not on the gains.
- Non-residents: the rebate is only for residents.
- The old regime: there, the rebate stops at ₹5 lakh of taxable income and is at most ₹12,500.
Check your own salary
Frequently asked questions
Do I need to file a return if my tax is zero?
Yes, if your gross income before deductions is above the basic exemption limit (₹4 lakh in the new regime). Filing also lets you claim back any TDS.
Is ₹12 lakh tax-free for pensioners?
Yes. Pensioners get the same ₹75,000 standard deduction, so pension up to ₹12.75 lakh is tax-free in the new regime.
Is income up to ₹12 lakh tax-free for business owners?
Yes, if their taxable income is ₹12 lakh or less in the new regime. They do not get the standard deduction, so the limit is ₹12 lakh rather than ₹12.75 lakh.
Sources: Income Tax Department