How Much Tax Do You Actually Pay on ₹12 Lakh in FY 2025-26?

One of the most talked-about features of the FY 2025-26 tax rules is the claim that income up to ₹12 lakh is effectively tax-free under the New Regime. It sounds almost too good to be true. So how much tax do you *actually* pay on a ₹12 lakh income — and can your salary be even higher than that and still pay nothing? Let's break it down precisely.

The short answer

Under the New Tax Regime for FY 2025-26, if your taxable income is up to ₹12 lakh, your income tax works out to zero. This happens because of a rebate under Section 87A worth up to ₹60,000 — enough to completely wipe out the tax that the slabs would otherwise charge on ₹12 lakh of income.

How the rebate actually works

Here's the mechanism. First, the slabs calculate your tax as normal: nil up to ₹4 lakh, 5% on ₹4–8 lakh, and 10% on ₹8–12 lakh. On ₹12 lakh of taxable income, that comes to ₹60,000. Then the Section 87A rebate steps in and cancels exactly that amount — bringing your final tax to zero. So it's not that the income is untaxed; it's that the tax is fully rebated.

Why your salary can be higher than ₹12 lakh

This is the part many people miss. Because salaried taxpayers get a ₹75,000 standard deduction, your actual salary can be higher than ₹12 lakh and still leave you with taxable income under the threshold. A salary of around ₹12.75 lakh, minus the ₹75,000 standard deduction, brings taxable income down to ₹12 lakh — which is fully rebated. So the real “zero-tax” salary figure is closer to ₹12.75 lakh than ₹12 lakh.

What happens just above the threshold?

You might expect that crossing ₹12 lakh taxable income triggers a sudden, painful tax bill. It doesn't — thanks to marginal relief. Just above the threshold, the law caps your tax so that the extra tax you pay never exceeds the extra income you earned above ₹12 lakh. In other words, earning ₹1 more than the limit will never cost you thousands in tax. The system is designed to avoid exactly that kind of cliff.