₹12 Lakh Tax-Free? Section 87A Rebate Explained (AY 2026-27)
Yes — but there's a catch most people miss. Here's exactly how the rebate works, and when it doesn't.
How ₹12 lakh becomes tax-free
Under the new regime for FY 2025-26, the tax on ₹12 lakh of income works out to around ₹60,000. The Section 87A rebate of up to ₹60,000 wipes exactly that out — so your net tax is zero if your taxable income is up to ₹12 lakh.
For salaried people there's an extra cushion: the ₹75,000 standard deduction comes off first. So a salary up to about ₹12.75 lakh can be entirely tax-free.
The catch #1: it's the NEW regime only
This ₹12 lakh / ₹60,000 rebate exists only under the new regime. The old regime has a much smaller 87A rebate — up to ₹5 lakh of income, maximum ₹12,500.
The catch #2: capital gains are NOT covered
This is the big one. The rebate does not apply to income taxed at special rates — short-term capital gains under Section 111A (20%) and long-term gains under Section 112A (12.5%). So even if your salary is under ₹12 lakh and pays zero tax, you still pay full tax on your stock/mutual-fund gains separately. See capital gains tax AY 2026-27.
Marginal relief just above ₹12 lakh
If your income is slightly over ₹12 lakh, marginal relief ensures your tax doesn't jump wildly — you don't pay more extra tax than the income above ₹12 lakh. But once you're comfortably above the threshold, normal slab tax applies.
See your exact tax — both regimes
Your CA computes the rebate, capital gains and both regimes, and files under whichever is lower.
File with a CA →Related: New vs Old regime — which saves more →
General information for AY 2026-27, not individual tax advice. Reviewed by a Chartered Accountant.