Key facts at a glance
New Regime rebate cap
Rs 60,000
up to Rs 12L taxable income
Effective nil-tax gross salary
₹12,75,000
after Rs 75,000 standard deduction
Marginal relief window
~Rs 70,588
of taxable income above the threshold
Here's the number before the mechanics: a salaried employee earning up to ₹12,75,000 gross under the New Regime pays zero income tax, because the Rs 75,000 standard deduction brings taxable income to exactly Rs 12,00,000, and the Section 87A rebate (capped at Rs 60,000) cancels the entire slab-computed tax bill.
Cross that line and you don't fall off a cliff: a statutory marginal relief provision smooths the transition until roughly ₹13,45,000 gross salary, capping your tax at exactly the amount by which your income exceeds the threshold. Only past that point does the full slab-rate tax apply without any rebate cushioning.
Check exactly where your salary lands relative to the Rs 12L threshold.
Open the India calculatorHow the rebate actually works, and why the cap is exactly Rs 60,000
Section 87A is a rebate against your computed tax, not a tax-free income band written into the slab structure itself. Run Rs 12,00,000 of New Regime taxable income through the slabs and you get: nil on the first Rs 4,00,000, 5% on the next Rs 4,00,000 (Rs 20,000), and 10% on the next Rs 4,00,000 (Rs 40,000), for a total of exactly Rs 60,000. The rebate cap is set to that exact figure, so it fully cancels the tax at precisely Rs 12,00,000 of taxable income, no more, no less.
That's why the headline "Rs 12 lakh tax-free" is accurate for taxable income but slightly misleading for gross salary: add back the Rs 75,000 standard deduction salaried employees get, and the real nil-tax gross salary ceiling is ₹12,75,000, not Rs 12,00,000 flat. Self-employed taxpayers without a standard deduction hit the Rs 12,00,000 threshold at exactly Rs 12,00,000 of income instead.
The marginal relief provision is the more subtle piece. Without it, earning even Rs 1 over Rs 12,00,000 taxable income would mean losing the entire Rs 60,000 rebate at once, a bizarre cliff where a tiny raise could cost tens of thousands of rupees in extra tax. Marginal relief prevents that: it caps your actual tax payable at the amount your income exceeds Rs 12,00,000, for as long as that's less than the full slab tax. The relief shrinks as your income rises, since the slab tax on the excess grows faster (15% per rupee) than the excess income itself (100% per rupee) can catch up, and it disappears entirely once slab tax overtakes the income excess.
The rebate and marginal relief, worked at four salary points
New Regime, FY 2026-27, Rs 75,000 standard deduction already applied to reach taxable income.
| Gross salary | Taxable income | Rebate applied | Tax after rebate | Note |
|---|---|---|---|---|
| ₹12,75,000 | ₹12,00,000 | ₹60,000 | ₹0 | Exactly at the Rs 12L taxable-income threshold |
| ₹13,00,000 | ₹12,25,000 | ₹38,750 | ₹25,000 | Rs 25,000 taxable income above threshold |
| ₹13,45,000 | ₹12,70,000 | ₹500 | ₹70,000 | Near the marginal relief cutoff |
| ₹15,00,000 | ₹14,25,000 | ₹0 | ₹93,750 | Well past marginal relief, rebate is nil |
Figures use the New Regime FY 2026-27 slabs and the Section 87A marginal relief formula. Run your own exact salary through the India Salary Calculator.
The most common misreading of the "Rs 12L tax-free" headline
It's easy to read "Rs 12,00,000 tax-free" and assume the entire figure lands in your bank account untouched. It doesn't: the rebate only zeroes out income tax. Employees' Provident Fund contributions (typically 12% of basic pay) and professional tax are separate, non-tax deductions that still apply, so a salaried employee at exactly the rebate threshold still sees meaningfully less than ₹12,75,000 actually credited to their account.
It's also worth remembering the threshold is taxable income, not gross salary, which is why the standard deduction matters so much here: it's the reason the real "safe" gross salary ceiling is ₹12,75,000 for salaried employees rather than a flat Rs 12,00,000, a Rs 75,000 gap that trips up a lot of quick mental math.
Why the marginal relief window closes around Rs 12,70,588 of taxable income
Just above the Rs 12,00,000 threshold, slab tax grows at 15% of every additional rupee (the New Regime's rate for the Rs 12,00,000-16,00,000 band), while marginal relief caps your tax at 100% of the additional rupee, since it can't exceed the income excess itself. Because 15% is smaller than 100%, slab tax starts below the income excess and takes a while to catch up: specifically, once the excess income clears roughly Rs 70,588, the accumulated 15% slab tax (Rs 60,000 base plus 15% of the excess) finally overtakes the excess income itself, and marginal relief stops applying.
That works out to roughly ₹12,70,588 of taxable income, or about ₹13,45,000 of gross salary after the Rs 75,000 standard deduction, as the point where marginal relief fully disappears and the New Regime's 15% band applies without any rebate cushioning. Between the Rs 12,00,000 rebate threshold and that point, your effective tax rate on the marginal rupee stays capped well below 15%, a genuinely valuable, often-overlooked buffer zone for anyone negotiating a raise that lands just above the threshold.
See exactly where your salary sits against the rebate threshold
Enter your gross salary to see your exact rebate, marginal relief (if any), and take-home under both regimes.
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Frequently asked questions
Is salary up to Rs 12,00,000 actually tax-free in India?
Not quite as commonly stated, but close. It's your taxable income (after the Rs 75,000 standard deduction for salaried employees) that needs to be Rs 12,00,000 or less, and the Section 87A rebate then cancels the tax the slabs would otherwise charge. Because the New Regime's standard deduction is Rs 75,000, a gross salary up to ₹12,75,000 lands at zero tax, that's the real "tax-free" ceiling for a salaried employee, not Rs 12,00,000 of gross salary.
Why is the rebate cap exactly Rs 60,000?
Because that's precisely the tax the New Regime slabs charge on Rs 12,00,000 of taxable income: nil on the first Rs 4,00,000, 5% on the next Rs 4,00,000 (Rs 20,000), and 10% on the next Rs 4,00,000 (Rs 40,000), totaling exactly Rs 60,000. The rebate cap wasn't picked as a round number independently, it's set to fully cancel the slab tax at the chosen threshold, which is why the two figures line up so cleanly.
What happens the moment my salary crosses Rs 12,75,000?
You don't fall off a cliff. A statutory marginal relief provision kicks in: your tax payable is capped at the amount by which your taxable income exceeds Rs 12,00,000, for as long as that's less than what the slabs alone would charge. So earning one extra rupee above the threshold costs you, at most, one extra rupee of tax, never a sudden jump to the full slab-calculated amount. This relief narrows as your income rises further and disappears entirely once slab tax alone exceeds the income excess, around Rs 12,70,588 of taxable income for FY 2026-27 (roughly Rs 13,45,588 gross salary after the standard deduction).
Does the Old Regime have the same rebate?
Yes, the same mechanism, different numbers. The Old Regime's Section 87A rebate caps at Rs 12,500 and applies up to Rs 5,00,000 of taxable income, exactly matching the tax the Old Regime's slabs charge at that income (Rs 2,50,000 at 5% = Rs 12,500). The same marginal relief logic applies just above that threshold too, narrowing to zero around Rs 5,15,625 of taxable income.
Does the rebate apply to capital gains or other special-rate income?
Generally no, for most types of long-term and short-term capital gains taxed at special rates (rather than slab rates), Section 87A rebate is either restricted or unavailable, and this has been the subject of some litigation and clarification in recent years. This calculator and article are scoped to salary income taxed at normal slab rates; if a meaningful share of your income is capital gains, don't assume the rebate applies the same way, check current guidance or a chartered accountant.
Can I get the rebate under both regimes in the same year?
No, you file under one regime per year (with limited switching flexibility for salaried employees without business income), so you get whichever rebate applies to the regime you choose, not both. Since the New Regime's threshold and rebate cap are both roughly 2.4x the Old Regime's, salaried employees near either threshold should check which regime actually zeroes out their tax before assuming the New Regime automatically wins.
Is Rs 12,00,000 the same as saying I keep 100% of a Rs 12,00,000 salary?
No, and this is a common confusion. The rebate only zeroes out income tax; it doesn't touch EPF contributions (typically 12% of basic pay, deducted from your salary before it becomes take-home cash) or professional tax. So a salaried employee at the rebate threshold pays no income tax, but still sees EPF and professional tax reduce what actually lands in their bank account, see our CTC vs in-hand guide for the full picture.