Earning ₹12.75 Lakh/year in FY 25-26? You pay ZERO income tax.
But most people don't understand how this actually works. It's NOT an exemption.
Here's the full breakdown 👇
1. First, let's understand what changed.
Until FY 2024-25, income up to ₹7 lakh was tax-free under the new regime. Budget 2025 raised this limit to ₹12 lakh.
That's a ₹5 lakh jump, the biggest middle-class tax relief in years
2. So how does ₹12 lakh become zero tax? Through Section 87A, a rebate on your final tax bill.
Here's the math:
➡️Tax on ₹12L income (new regime) = ₹60,000
➡️Section 87A rebate = ₹60,000
➡️Tax payable = ₹0 ✅
The rebate wipes out your entire liability.
3. Important: This is a REBATE, NOT an exemption.
You are still technically taxed as per the slabs. But the ₹60,000 rebate cancels out the tax completely, If your income is ₹12L or less.
Cross ₹12L by even ₹1? The rebate disappears
4. Now, if you're salaried, there's a bonus.
You get a Standard Deduction of ₹75,000 automatically.
So:
➡️Gross Salary = ₹12.75 Lakh
➡️Minus Standard Deduction = ₹75,000
➡️Taxable Income = ₹12 Lakh
➡️Tax = ₹0 ✅
Salaried folks get an extra ₹75K buffer!
5. What about earning slightly above ₹12 Lakh? Say your income is ₹12.1 Lakh. Normally, that's ₹61,500 in tax.
But Marginal Relief kicks in, you only pay ₹10,000 (the extra income above ₹12L). So you don't get punished for earning a little more.
6. What's NOT covered by this zero-tax benefit?
➡️Capital Gains (STCG/LTCG)
➡️Lottery or game show winnings
➡️Other special rate income
These are taxed separately, even if your salary is under ₹12L. Always check your total income, not just salary
7. Who is eligible?
✅ Resident Indians only
✅ Individuals only (not HUFs, firms, companies)
✅ Only under the NEW tax regime
✅ Income must be ₹12L or below after deductions
8. To summarise:
✅ Earn up to ₹12L → Zero tax (new regime)
✅ Salaried up to ₹12.75L → Still zero tax
✅ Marginal Relief protects you if you slightly exceed ₹12L
❌ Capital gains still taxed separately
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