Income Tax on ₹12 Lakh Salary: Zero Tax Under New Regime FY 2025-26

# Income Tax on ₹12 Lakh Salary: Zero Tax Under New Regime FY 2025-26

One of the biggest changes in FY 2025-26 is that salaried employees earning up to ₹12,00,000 can pay zero income tax under the new regime. Here is exactly how.

How the Rebate Works

Under Section 87A, the new regime offers a tax rebate that makes your tax nil if your taxable income is up to ₹12,00,000.

For salaried employees:
- Standard deduction: ₹75,000
- Taxable income = Gross salary − ₹75,000
- If taxable income ≤ ₹12,00,000 → Zero tax

So if your gross salary is up to ₹12,75,000, your taxable income is ₹12,00,000 after the standard deduction, and you pay zero tax.

Step-by-Step Calculation

Gross salary: ₹12,75,000

| Step | Amount |
|------|--------|
| Gross Salary | ₹12,75,000 |
| Less: Standard Deduction | −₹75,000 |
| Taxable Income | ₹12,00,000 |
| Tax on ₹4,00,000 (0%) | ₹0 |
| Tax on ₹4,00,000 (5%) | ₹20,000 |
| Tax on ₹4,00,000 (10%) | ₹40,000 |
| Total tax before rebate | ₹60,000 |
| Less: 87A Rebate (up to ₹60,000) | −₹60,000 |
| Final Tax | ₹0 |

The rebate covers the entire tax liability when taxable income is ₹12,00,000 or less.

Who Benefits Most?

• Salaried employees earning ₹12,75,000 or less (gross)
• Freelancers with taxable income under ₹12,00,000 after deductions
• Anyone with minimal deductions who would otherwise pay tax

What If You Earn More Than ₹12 Lakh?

If your taxable income exceeds ₹12,00,000 even by ₹1, the rebate does not apply, and you pay tax on the full amount from ₹4,00,000.

Example: ₹13,00,000 gross salary

| Step | Amount |
|------|--------|
| Gross Salary | ₹13,00,000 |
| Less: Standard Deduction | −₹75,000 |
| Taxable Income | ₹12,25,000 |
| Tax (0% + 5% + 10% + 15%) | ₹63,750 |
| No rebate (above ₹12L) | ₹0 |
| Final Tax | ₹63,750 |

Earning just ₹25,000 more means paying ₹63,750 in tax. This is the "cliff" in the new regime.

Compare With Old Regime

Same ₹12,75,000 gross salary, old regime:

| Deduction | Amount |
|-----------|--------|
| 80C | ₹1,50,000 |
| 80D | ₹25,000 |
| Standard Deduction | ₹50,000 |
| Total Deductions | ₹2,25,000 |
| Taxable Income | ₹10,50,000 |
| Tax (old regime slabs) | ₹1,15,000 |
| 87A Rebate | ₹0 (income > ₹5L) |
| Final Tax | ₹1,15,000 |

Under the old regime with common deductions, you still pay ₹1,15,000. The new regime saves you ₹1,15,000 in this case.

Use a Calculator

Enter your exact numbers into the free Income Tax Calculator to compare both regimes for your specific situation.

Bottom Line

• Gross up to ₹12,75,000 → Zero tax under new regime
• The rebate cliff at ₹12L means earning slightly more can cost significantly more
• Check every year with a calculator — your situation changes

Calculate now with the Income Tax Calculator.