Is a ₹12 lakh salary really tax-free?

Taxable income up to ₹12,00,000 pays nil tax under the new regime in FY 2025-26, because of the Section 87A rebate. The ₹75,000 standard deduction means that corresponds to a gross salary of ₹12,75,000. The limit is on taxable income, not on your salary — which is where most of the confusion comes from.

The limit is on taxable income, not on salary

Section 87A gives a full rebate when taxable income is ₹12,00,000 or less under the new regime. Taxable income is what remains after the standard deduction, so it is not the same as your gross salary and not the same as your CTC — three different numbers that headlines routinely treat as one.

In FY 2025-26 the new-regime standard deduction is ₹75,000. Subtract it from a gross salary of ₹12,75,000 and taxable income is exactly ₹12,00,000, which is the last rupee the full rebate reaches. That is the real nil-tax salary figure, and it is ₹75,000 higher than the number most people have in mind.

gross ₹12,75,000 − standard deduction ₹75,000 = taxable ₹12,00,000 → nil tax

Why it is nil rather than small

The rebate does not mean the slabs stop applying. On taxable income of ₹12,00,000 the slabs produce ₹60,000 of tax — nothing on the first ₹4,00,000, 5% on the next ₹4,00,000 (₹20,000), and 10% on the next ₹4,00,000 (₹40,000). Section 87A then rebates the whole ₹60,000, and because cess is charged on tax after the rebate, the 4% applies to zero.

So the tax is genuinely nil, not merely low. But it is nil because of a rebate that switches off completely past its limit, which is what makes the next section matter more than it looks.

₹0 + ₹20,000 + ₹40,000 = ₹60,000 slab tax → 87A rebate ₹60,000 → nil

Just above the line, and what stops a cliff

Without protection, one rupee over the limit would cost ₹60,000, so the law applies marginal relief: the tax cannot exceed the amount by which taxable income exceeds ₹12,00,000. At a gross salary of ₹13,00,000 — taxable ₹12,25,000, or ₹25,000 over — the slab tax of ₹63,750 is cut to ₹25,000, and with 4% cess the bill is ₹26,000.

Relief keeps mattering until the slab tax falls below the excess itself, which happens at taxable income of ₹12,70,588 — a gross salary of ₹13,45,588. Below that point you are paying roughly your excess over the limit; above it you are paying ordinary slab tax with no relief at all. At ₹13,50,000 gross the tax is ₹74,100.

relief applies while slab tax > (taxable − ₹12,00,000) → up to taxable ₹12,70,588

The old regime at the same salary

None of this exists in the old regime. Its own 87A rebate stops at ₹5,00,000 of taxable income and is capped at ₹12,500, so it does nothing at these salaries. On a ₹12,75,000 gross salary with no deductions claimed, the old regime costs ₹1,87,200 against nil under the new one.

Deductions narrow that but have a long way to travel: the gap is the entire tax bill, so the old regime only becomes competitive here if you can genuinely claim a large stack of 80C, 80D, HRA and home-loan interest. Whether you can is a question about your own documents, not about the rates.

What changes the answer

Your salary structure, mainly. Employer NPS under 80CCD(2) is deductible in both regimes — up to 14% of basic and DA in the new regime — and it reduces taxable income, so it can pull someone above the line back under it. That makes the split between basic pay and allowances worth reading off your own payslip rather than assuming.

These figures are FY 2025-26, for a resident individual below 60 with salary income only. They exclude surcharge (which starts above ₹50,00,000), capital gains, business income, more than one house property, and the senior-citizen slabs. A nil-tax result is also not the same as having no return to file — the rebate reduces tax, it does not by itself remove a filing obligation, and that is worth checking against your own situation.