“No tax up to ₹12 lakh”: how the rebate actually works

The two figures, and why both appear

Under the new tax regime for Tax Year 2026-27, a resident individual is eligible for a rebate of up to ₹60,000 under the rebate provision, which has the effect of making income up to ₹12 lakh free of tax.

Separately, a salaried individual is eligible for a standard deduction of ₹75,000 from salary income. Because the deduction reduces taxable income before the rebate is applied, a salaried person can have gross salary of about ₹12.75 lakh and still arrive at zero tax.

Hence two figures in circulation. ₹12 lakh is the taxable-income threshold. Roughly ₹12.75 lakh is the gross-salary equivalent for someone eligible for the standard deduction. Neither number is a slab.

Why "rebate, not slab" is the whole point

A slab structure taxes each band of income at its own rate. A rebate is different: tax is first computed normally across the slabs, and then the rebate is set off against the tax payable, up to a ceiling.

The practical consequence is a cliff rather than a ramp. Below the threshold the rebate can extinguish the computed tax entirely. Above it, the rebate is not available in the same way, and tax becomes payable on the slab basis from the first taxable rupee — not merely on the excess over the threshold.

This is why income just above the threshold deserves care, and why marginal relief provisions exist at all. It is also why "I earn a little over ₹12 lakh so I pay a little tax" is not how the arithmetic works.

A worked example

Consider two hypothetical salaried people. The first has gross salary of ₹12,50,000. After a standard deduction of ₹75,000 the taxable income is ₹11,75,000 — below the threshold, so the rebate can extinguish the computed tax.

The second has gross salary of ₹14,00,000. After the same deduction, taxable income is ₹13,25,000, above the threshold. Tax is computed across the slabs on the whole taxable amount, and the rebate is not available on the same basis. The gap in take-home between the two is wider than the ₹1,50,000 gap in gross salary would suggest.

This illustration is hypothetical, uses assumed figures and is included only to explain a mechanism. It is not a projection. Past performance may or may not be sustained in the future and is not a guarantee of future returns.

Key highlights

• The relief is a rebate against tax payable, not a nil-rate slab.
• Rebate ceiling of ₹60,000 makes taxable income up to ₹12 lakh effectively tax-free under the new regime.
• Standard deduction of ₹75,000 applies to salary income, lifting the equivalent gross-salary figure to about ₹12.75 lakh.
• The old regime remains available; which is better depends on the deductions you actually claim.
• Rates and thresholds are set by Budget provisions and can change; the 2025 Act rewrite did not itself alter them.

What to check

1. Whether you are comparing gross salary or taxable income — most confusion traces to this.
2. Which regime you are on, and whether the deductions you actually claim justify the old regime.
3. The declaration you have given your employer, so that TDS through the year matches the position you intend to take.
4. If your income sits close to the threshold, have a qualified tax professional check the arithmetic rather than relying on a headline figure.

Frequently asked questions