Is Income up to ₹12 Lakh Really Tax-Free? Section 156 Rebate Explained
- Total income up to ₹12,00,000 – tax is nil for a resident individual under the new regime (section 202(1)), because the rebate in section 156(2)(a) cancels tax up to ₹60,000.
- It is "total income", i.e. after deductions – so a salaried person gets the ₹75,000 standard deduction first.
- Just above ₹12 lakh the rebate tapers off (section 156(2)(b)), so you never pay more tax than the income above ₹12 lakh – until about ₹12.7 lakh.
- Under the old/other regime the rebate is only up to ₹12,500 and only if total income is up to ₹5,00,000 (section 156(1)).
"Income up to ₹12 lakh is tax-free" is the most repeated line about the new law – and it is mostly right, but with conditions. This guide shows exactly how it works, using the words of the Income-tax Act, 2025.
Step 1 – the slab rates (section 202(1))
Unless you opt out (see our regime guide), the tax of an individual is computed on total income at the rates in the Table in section 202(1):
| Total income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹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% |
At exactly ₹12,00,000 the slab tax is ₹20,000 (5% of ₹4 lakh) + ₹40,000 (10% of ₹4 lakh) = ₹60,000.
Step 2 – the rebate (section 156(2))
For a resident individual whose total income is chargeable to tax under section 202(1), section 156(2) gives a deduction from the tax:
- (a) if total income does not exceed ₹12 lakh – 100% of the tax or ₹60,000, whichever is less. Since the tax at ₹12 lakh is exactly ₹60,000, the tax becomes nil.
- (b) if total income exceeds ₹12 lakh and the tax exceeds the amount by which income is above ₹12 lakh – the rebate equals that difference in the tax. In plain words: your tax is limited to the income above ₹12 lakh.
- (3) the rebate cannot exceed the tax calculated at the section 202(1) rates.
Worked examples (tax before cess)
| Total income | Slab tax | Rebate | Tax payable |
|---|---|---|---|
| ₹10,00,000 | ₹40,000 | ₹40,000 | Nil |
| ₹12,00,000 | ₹60,000 | ₹60,000 | Nil |
| ₹12,10,000 | ₹61,500 | ₹51,500 | ₹10,000 (= the ₹10,000 above ₹12 lakh) |
| ₹12,50,000 | ₹67,500 | ₹17,500 | ₹50,000 |
| ₹12,75,000 | ₹71,250 | Nil | ₹71,250 |
The tapering stops where the slab tax (₹60,000 + 15% of the amount above ₹12 lakh) becomes smaller than the amount above ₹12 lakh – at about ₹12,70,588. Beyond that the normal slab tax applies.
Health and education cess of 4% is added to the tax. It is levied through the Finance Act, not in the text of the Income-tax Act, so it is not shown above; on nil tax the cess is also nil.
What about salary?
The ₹12 lakh limit is on total income, not gross salary. For a salaried employee the standard deduction of ₹75,000 (section 19, Table Sl. 2) is allowed under section 202(1). So a salary of ₹12,75,000 gives total income of ₹12,00,000 and nil tax – provided there is no other income. Read how it works in our guide on the standard deduction.
Who does not get it?
- The rebate in section 156 is for an individual resident in India – not for companies, firms, HUFs or non-residents.
- Section 156(3) limits the rebate to the tax at the section 202(1) slab rates, so it works only against the tax calculated at those slab rates.
- If you opt for the other (old) regime under section 202(4), the ₹60,000 rebate does not apply. Section 156(1) then gives a rebate of 100% of tax or ₹12,500, whichever is less, only if total income is not more than ₹5,00,000.
Quick checklist
- Work out total income (salary after standard deduction + other income − allowed deductions).
- If it is ₹12,00,000 or less and you are a resident individual under the new regime – tax is nil.
- If it is a little above ₹12 lakh, use the table above: tax = the smaller of the slab tax and the income above ₹12 lakh.
Want to see the numbers for your own salary? Try the AP or Telangana calculator, or the tax slabs page.
Still have a question? Ask TAXBADI – get an answer from the Act, Rules and forms, with the exact sections cited.
More guides
- Arrears of Salary – Relief under Section 157, Rule 73 and Form No. 39 (Old 89(1))
- Capital Gains Tax Rates 2026-27 – Shares, Mutual Funds and Property under the New Act
- Clubbing of Income – Section 99: When Spouse or Minor Child Income Is Added to Yours
- Filing Income Tax Return Late – Fee under Section 428 and Interest under Sections 423 to 425
This guide is for general information and is not tax advice. Tax figures are before health and education cess unless stated. The law and the official notifications are the final authority – see our Disclaimer. Found a mistake? Tell us.