If the number in your head for tax-free income is still Rs 7 lakh, it is out of date. For the income you earned in FY 2025-26 (assessment year 2026-27), a salaried individual can earn up to Rs 12.75 lakh and pay zero income tax under the new regime. No, that is not a typo. Here is exactly how it works, and the two conditions that matter.
The tax-free limit jumped, and most people missed it
Last year, the rebate under the new regime covered taxable income up to Rs 7 lakh. For FY 2025-26, that ceiling has been raised sharply. A resident individual with taxable income up to Rs 12 lakh now pays no income tax under the new regime. For salaried people, the effective limit rises further, to Rs 12.75 lakh, once you add the standard deduction.
Most people simply have not updated the figure. If you still budget your taxes around a Rs 7 lakh cut-off, you may be overestimating what you owe.
It is a rebate, not magic
The zero-tax outcome comes from Section 87A, not from the slabs disappearing.
On Rs 12 lakh of taxable income, the new regime slabs would normally add up to roughly Rs 60,000 in tax. Section 87A then provides a rebate of up to Rs 60,000, which wipes that liability out entirely. Your net tax payable becomes zero. The rebate is 100 percent of the tax payable, capped at Rs 60,000, and it applies to taxable income up to Rs 12 lakh under the new regime.
The salaried bonus: add Rs 75,000
If you are salaried, you also get a standard deduction of Rs 75,000 under the new regime. That deduction comes off your gross salary before your taxable income is calculated.
So a salaried person earning Rs 12.75 lakh subtracts the Rs 75,000 standard deduction, arrives at Rs 12 lakh of taxable income, and then has that tax fully rebated under Section 87A. The result: a gross salary of Rs 12.75 lakh, and zero income tax.
Two honest conditions you must know
This is where careful planning matters. The zero-tax benefit comes with two important limits.
1. It is the new regime only. This rebate and the Rs 12 lakh threshold apply under the new tax regime. The old regime has its own, lower rebate limits. So the benefit assumes you are filing under the new regime, which is now the default.
2. It does not cover special-rate income. The rebate applies to income taxed at normal slab rates. Income taxed at special rates, such as capital gains on equity, is not covered by the full Section 87A rebate in the same way. If a chunk of your income comes from capital gains, your tax outcome will differ, so do not assume the entire Rs 12.75 lakh figure applies to you automatically.
What this means for you
If your income is mostly salary and it sits at or below Rs 12.75 lakh, you may owe nothing under the new regime this year. Before you file, it is still worth comparing the old and new regimes for your specific situation, especially if you claim large deductions like home loan interest or 80C investments, because for some people the old regime can still win.
Frequently asked questions
What is the tax-free income limit for FY 2025-26?
Under the new regime, a resident individual with taxable income up to Rs 12 lakh pays zero income tax. For salaried individuals, the effective limit is Rs 12.75 lakh after the Rs 75,000 standard deduction.
How much is the Section 87A rebate for FY 2025-26?
The rebate is up to Rs 60,000 under the new regime, which fully offsets the tax on taxable income up to Rs 12 lakh.
Does the zero-tax benefit apply to capital gains?
No. Income taxed at special rates, such as equity capital gains, is not covered by the full rebate in the same way. Only income taxed at normal slab rates gets the full benefit.
Does this apply under the old tax regime?
No. The Rs 12 lakh threshold and the Rs 60,000 rebate apply under the new tax regime. The old regime has different, lower rebate limits.
This article is general information for FY 2025-26 (AY 2026-27) and not tax advice. Tax outcomes depend on your individual income mix and deductions. Confirm your figures on incometax.gov.in or with a qualified tax professional before filing.
