No Tax on ₹12.75 Lakh Income: Can you really earn up to ₹12.75 lakh and still pay zero income tax in FY 2025–26? Thanks to the updated Section 87A rebate in Budget 2025, the answer is a cautious but confident yes—if you follow certain rules under the new tax regime.
The government has made a bold move to increase disposable income and promote simplified tax filing by tweaking the rebate limit, tax slabs, and standard deduction. Let’s break it down so you know exactly how to benefit—and avoid hidden tax traps.
No Tax on ₹12.75 Lakh Income
| Key Detail | Information |
|---|---|
| Maximum Tax-Free Gross Income | ₹12.75 lakh (under new regime, with standard deduction + Section 87A rebate) |
| Section 87A Rebate | Up to ₹60,000 (for taxable income up to ₹12 lakh) |
| Standard Deduction (New Regime) | ₹75,000 for salaried individuals |
| Applicable Tax Regime | New Tax Regime only |
| Old Regime Rebate | ₹12,500 (only for income up to ₹5 lakh) |
| Official Website | incometax.gov.in |
Budget 2025 has introduced a game-changing opportunity for middle-class earners to pay zero tax on income up to ₹12.75 lakh, provided they stick to the new tax regime and their net taxable income stays within ₹12 lakh. With the added standard deduction and rebate boost, the government is clearly pushing for simplified, transparent tax systems.
But remember—this isn’t automatic. Understanding your income structure, deductions, and the applicable regime is key to unlocking this benefit. Consult a tax advisor or use the official income tax calculator before filing.
Understanding Section 87A Rebate Under Budget 2025
Section 87A is not new—but Budget 2025 has supercharged it. In its updated form, resident individuals can claim a tax rebate of up to ₹60,000—as long as their net taxable income (after deductions) is ₹12 lakh or less.
What does this mean in simple terms?
If you’re a salaried individual earning a gross income of ₹12.75 lakh, you are eligible for:
- A standard deduction of ₹75,000, reducing your taxable income to ₹12 lakh.
- A rebate of ₹60,000, wiping out your entire tax liability under the new regime.
Net result: You pay ₹0 in income tax.
New Tax Slabs for FY 2025–26 (New Regime)
To understand how the tax system works under the new regime, here are the applicable slabs:
| Income Slab (₹) | Tax Rate |
|---|---|
| 0 – 4,00,000 | 0% |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Note: The rebate applies only up to a taxable income of ₹12 lakh, after all applicable deductions like the standard deduction.
Three Important Caveats You Should Know
While the offer sounds tempting, don’t assume it’s a flat rule. Here’s what could disqualify you from the tax-free status:
1. Capital Gains Are Not Covered
The Section 87A rebate does not apply to income taxed under special rates, such as:
- Short-Term Capital Gains (STCG) under Section 111A
- Long-Term Capital Gains (LTCG) on stocks, mutual funds, or real estate
Example: If you earn ₹12 lakh as salary and ₹75,000 as capital gains, only the salary qualifies for the rebate. You’ll still owe tax on the ₹75,000.
2. Rebate Is Only for the New Regime
If you’re still opting for the old tax regime, you won’t get this enhanced rebate. In the old regime:
- The rebate under Section 87A is capped at ₹12,500
- It applies only if your income is up to ₹5 lakh
So if you want to maximize savings, shifting to the new tax regime might be smarter—especially with the updated slabs and standard deduction.
3. Marginal Relief for Income Above ₹12 Lakh
Here’s where it gets interesting: What if your taxable income exceeds ₹12 lakh by a small amount?
The government has introduced marginal relief so that you don’t end up paying more in taxes than the extra income you earned.
If your taxable income is between ₹12 lakh and ₹12.75 lakh, you may still pay zero or very minimal tax, thanks to this relief.
Real-Life Scenario: How the Math Adds Up
Let’s say Rahul, a software engineer, earns ₹12.75 lakh as gross income.
- Gross Salary: ₹12,75,000
- Standard Deduction: ₹75,000
- Net Taxable Income: ₹12,00,000
- Tax on ₹12 lakh (based on slab): ₹60,000
- Rebate under Section 87A: ₹60,000
- Net Tax Payable: ₹0
Now let’s assume Priya earns ₹12.9 lakh.
- After standard deduction: ₹12.15 lakh
- Tax: Approx ₹63,000
- Rebate: ₹60,000 (since she is above ₹12L limit, not eligible)
- Net tax payable: ₹63,000
But marginal relief may reduce this to avoid paying ₹63,000 on just ₹15,000 extra income.
Should You Choose the New Regime in 2025?
While the new tax regime offers simplified compliance, lower rates, and now a bigger rebate, it removes many popular deductions such as:
- 80C (PF, LIC, ELSS, tuition fees)
- 80D (health insurance)
- HRA (House Rent Allowance)
- LTA (Leave Travel Allowance)
If you’re someone with few deductions, the new regime with Section 87A is ideal.
If you have home loans, investments, and medical expenses, the old regime could still work better. Use this official Income Tax Calculator to compare regimes and optimize your savings.
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FAQs on No Tax on ₹12.75 Lakh Income
Q1. Is the ₹60,000 rebate available to everyone?
No. It is available only to resident individuals whose net taxable income is up to ₹12 lakh, and only under the new tax regime.
Q2. Can I claim both HRA and Section 87A rebate?
No. HRA is allowed only under the old regime, whereas the Section 87A rebate of ₹60,000 is available only in the new regime.
Q3. I earned ₹12.5 lakh this year. Can I still get the rebate?
Only if your taxable income (after standard deduction) is reduced to ₹12 lakh or less. If not, you may qualify for marginal relief, which limits excessive tax liability for incomes just over the threshold.
Q4. Are senior citizens eligible for this rebate?
Yes. The rebate under Section 87A applies regardless of age, as long as you’re a resident individual with taxable income under ₹12 lakh.
