The short answer
Yes, under the new tax regime. A rebate of up to ₹60,000 wipes out the tax on taxable income up to ₹12 lakh. Salaried people also get a ₹75,000 standard deduction, so a salary of up to ₹12.75 lakh is effectively tax-free. Capital gains taxed at special rates do not get this rebate.
How the zero-tax limit works in tax year 2026-27
The headline figure of ₹12 lakh is not a tax-free slab. The new regime still taxes income above ₹4 lakh at 5% and upwards. What makes the tax zero is a rebate: if your taxable income is ₹12 lakh or less, the government gives back up to ₹60,000 of tax, which is exactly the tax on ₹12 lakh under the new slabs.
Salaried employees and pensioners get a further standard deduction of ₹75,000 before the rebate test. That is why a salary of up to ₹12.75 lakh pays no income tax at all, while someone earning the same amount from freelance work or interest only gets to ₹12 lakh.
The new regime slabs behind the rebate
| Taxable income | Rate |
|---|---|
| Up to ₹4 lakh | 0% |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
On ₹12 lakh of taxable income these slabs work out to ₹60,000 of tax, and the rebate cancels all of it. Health and education cess of 4% is charged on the tax after the rebate, so it is also zero.
What happens just above the limit
Without any adjustment, earning one rupee more than the limit would cost you the entire rebate. The law prevents this with marginal relief: your tax can never be more than the amount by which your taxable income exceeds ₹12 lakh. The relief fades out as income rises, and from about ₹12.7 lakh of taxable income you simply pay the normal slab tax.
| Annual salary | Taxable income | Tax payable | Effective rate |
|---|---|---|---|
| ₹12 lakh | ₹11,25,000 | ₹0 | 0.0% |
| ₹12.75 lakh | ₹12,00,000 | ₹0 | 0.0% |
| ₹13 lakh | ₹12,25,000 | ₹26,000 | 2.0% |
| ₹13.5 lakh | ₹12,75,000 | ₹74,100 | 5.5% |
| ₹14 lakh | ₹13,25,000 | ₹81,900 | 5.9% |
| ₹15 lakh | ₹14,25,000 | ₹97,500 | 6.5% |
| ₹16 lakh | ₹15,25,000 | ₹1,13,100 | 7.1% |
- A salary of ₹13 lakh pays ₹26,000, far less than the slab tax, because marginal relief caps it at the income above the limit.
- At ₹15 lakh the tax is ₹97,500, an effective rate of 6.5% on the whole salary.
- A freelancer with ₹12.5 lakh of income pays ₹52,000, because there is no standard deduction to bring them under the limit.
Who does not get the full benefit
- Old regime taxpayers. The old regime rebate is only ₹12,500, for taxable income up to ₹5 lakh. Choosing the old regime to claim deductions means giving up the larger rebate.
- Income taxed at special rates. Capital gains on listed shares and equity funds are taxed at their own rates, and the rebate does not reduce that tax. A salary of ₹10 lakh plus ₹3 lakh of short-term gains still pays tax on the gains.
- Non-salaried income. Business, professional, rental and interest income get no standard deduction, so the zero-tax point is ₹12 lakh, not ₹12.75 lakh.
Frequently asked questions
Is ₹12.75 lakh salary tax-free?
Yes, under the new regime. After the ₹75,000 standard deduction your taxable income is ₹12 lakh, and the rebate cancels the tax on it.
Do I have to pay tax if my salary is ₹13 lakh?
Yes, but very little. Marginal relief limits the tax to the income above ₹12 lakh, so a ₹13 lakh salary pays about ₹26,000 including cess.
Does the ₹12 lakh rebate apply in the old regime?
No. The old regime rebate is ₹12,500 and applies only when taxable income is ₹5 lakh or less.
Is capital gains income covered by the rebate?
No. Gains taxed at special rates, such as short-term and long-term gains on listed shares and equity mutual funds, are taxed separately and the rebate does not apply to that tax.
Do I still need to file a return if my tax is zero?
Often, yes. Filing is required when your gross income is above the basic exemption limit even if the rebate brings the tax to zero, and it is the only way to claim back any TDS.