Income Tax Basics
The new regime slabs and the ₹12 lakh rebate, explained
How the FY 2025-26 new-regime slabs, the ₹60,000 rebate and marginal relief actually work on your income.
By Siddharth Joshi4 min read
Since Budget 2025 the headline has been simple: no income tax up to ₹12 lakh under the new regime. That is true, but the headline hides three details that trip people up — the rebate is a credit rather than a higher exemption, it can vanish for some kinds of income, and there is a narrow band just above ₹12 lakh where special relief applies. Here is how it all fits together for FY 2025-26 (AY 2026-27).
The slabs, with running totals
The new regime has seven slabs. The last column shows the total tax (before cess and rebate) once your taxable income reaches the top of each slab, which makes quick estimates easy.
| Taxable income | Rate | Tax at top of slab |
|---|---|---|
| Up to ₹4 lakh | Nil | ₹0 |
| ₹4–8 lakh | 5% | ₹20,000 |
| ₹8–12 lakh | 10% | ₹60,000 |
| ₹12–16 lakh | 15% | ₹1,20,000 |
| ₹16–20 lakh | 20% | ₹2,00,000 |
| ₹20–24 lakh | 25% | ₹3,00,000 |
| Above ₹24 lakh | 30% | — |
To estimate tax on, say, ₹18 lakh: take ₹1,20,000 for the first ₹16 lakh, add 20% of the next ₹2 lakh (₹40,000), giving ₹1,60,000. Add 4% cess of ₹6,400 and the bill is ₹1,66,400.
How the ₹12 lakh rebate works
Notice that tax on exactly ₹12 lakh is ₹60,000. Section 87A gives resident individuals in the new regime a rebate of up to ₹60,000 when taxable income does not exceed ₹12 lakh. The slab tax is calculated as usual and then cancelled out by the rebate, so the final figure is zero. There is no cess either, because cess is charged on tax after rebate.
Two consequences follow. First, the rebate is only for residents — non-residents pay slab tax from ₹4 lakh. Second, the ₹12 lakh limit is on taxable income, after deductions, not on your gross pay.
Why salaried people get ₹12.75 lakh
Salary and pension income get a ₹75,000 standard deduction in the new regime. So a salary of ₹12,75,000 becomes taxable income of ₹12,00,000, the slab tax of ₹60,000 is fully rebated, and nothing is payable — provided you have no other income. If your employer also pays into NPS for you, that contribution (up to 14% of salary under 80CCD(2)) is deductible as well, which can stretch the zero-tax salary a little further.
Freelancers do not get the standard deduction. A freelancer’s ₹12 lakh limit applies to profit after expenses, or to deemed profit if they use presumptive taxation.
Marginal relief just above ₹12 lakh
Without a safety valve, earning ₹1 more than ₹12 lakh would cost you ₹60,000 in tax. Marginal relief prevents that: if your taxable income is a little over ₹12 lakh, your tax cannot exceed the amount by which you crossed ₹12 lakh.
Example: taxable income of ₹12,10,000. Slab tax is ₹60,000 + 15% of ₹10,000 = ₹61,500. You crossed the limit by only ₹10,000, so tax is capped at ₹10,000. Add 4% cess of ₹400 and you pay ₹10,400 rather than ₹63,960.
By our arithmetic the relief stops mattering at around ₹12.7 lakh of taxable income: beyond that, ordinary slab tax is already lower than the excess over ₹12 lakh. Your filing utility calculates this automatically; the point is to know why a small raise does not wipe out your take-home pay.
Income the rebate may not cover
Special-rate income is taxed outside the slabs. The common one is capital gains on listed shares and equity mutual funds (short-term under section 111A, long-term under 112A). The rebate generally cannot be used against tax on those gains, so someone with ₹9 lakh of salary income and some equity gains can still owe tax on the gains. If you sold shares or funds during the year, check how your return utility treats them before assuming a zero bill.
Quick checklist
- Work out taxable income first: gross income minus ₹75,000 (if salaried) minus 80CCD(2).
- At or below ₹12 lakh with no special-rate income: tax is nil.
- Slightly above ₹12 lakh: expect marginal relief.
- Above about ₹12.7 lakh: use the slab table and add 4% cess.
- Have equity gains? Compute tax on them separately.
Budget 2026 left these slabs and the ₹12 lakh rebate unchanged for the first tax year under the Income-tax Act, 2025, so these numbers stay relevant for income earned from April 2026 too.
General information, not tax advice. Rules change, so check the latest rules or speak to a CA before you act.