How You Can Pay ZERO Income Tax on ₹12.75 Lakhs Salary in Tax Year 2025-26

 

Introduction 

The Finance Bill 2025 has reshaped the personal taxation landscape under the new regime by amending Section 115BAC and Section 87A, bringing welcome relief to middle-class salaried individuals. For Assessment Year 2026-27 (Tax Year 2025-26), individuals can effectively have zero tax liability up to a gross income of Rs. 12,75,000, thanks to a standard deduction of Rs. 75,000 and an enhanced rebate under Section 87A. 

Let’s decode how this works in simple terms, with detailed examples and a look at the rebate mechanism under both Clause (a) and Clause (b) of Section 87A.1. What's Changed in Tax Rules for Tax Year 2025-26? 

 

• Section 87A Amendment: 

• Clause (a): Full rebate of up to Rs. 60,000 if taxable income does not exceed Rs. 12,00,000. 

• Clause (b): Partial rebate continues as marginal relief if tax payable exceeds the income exceeding Rs. 12,00,000. 

• Additional Proviso: Rebate cannot exceed the total tax payable. 

2. What This Means for Salaried Employees 

If your gross salary income is up to ₹12,75,000, after claiming the standard deduction of ₹75,000, your taxable income becomes ₹12,00,000 — and you can enjoy zero tax liability. 

Computation Example:
Particulars	Amount (Rs.)
Gross Salary	12,75,000
Less: Standard Deduction (u/s 16)	75,000
Net Taxable Income	12,00,000
Tax Calculation:
Income Slab	Tax Rate	Tax Amount
0 - 4,00,000	Nil	0
4,00,001 - 8,00,000	5%	20,000
8,00,001 - 12,00,000	10%	40,000
Total Tax		60,000
Less: Rebate u/s 87A	60,000
Net Tax Payable		0

 

3. What Happens If You Earn More Than ₹12,00,000? 

That’s where Clause (b) of Section 87A kicks in. This clause provides marginal relief, meaning: 

You only pay tax to the extent that it exceeds the extra income above ₹12,00,000 — no sudden tax shock. 

4. Marginal Relief Illustrated with Real Examples 

Example for Rs. 12,70,588 Taxable Income: 

Particulars	Amount (Rs.)
Tax Before Rebate	70,588
Excess Income over 12L	70,588
Rebate Allowed u/s 87A(b)	0
Net Tax Payable	70,588

Example for Rs. 13,40,000 Taxable Income: 

Particulars	Amount (Rs.)
Tax Before Rebate	81,000
Excess Income over 12L	1,40,000
Rebate Allowed u/s 87A(b)	0
Net Tax Payable	81,000

Example for Rs. 12,25,000 Taxable Income: 

Particulars	Amount (Rs.)
Tax Before Rebate	63,750
Excess Income over 12L	25,000
Rebate Allowed u/s 87A(b)	38,750
Net Tax Payable	25,000

Rebate continues until income reaches approx. ₹12,70,588 after which, no marginal relief is available.

5. Who Can Claim This Rebate? 

This benefit is available only if: 

• You are an individual (not HUF, firm, etc.) 

• You are a resident of India 

• You opt for the new tax regime under Section 115BAC(1A) 

Conclusion 

For salaried individuals earning up to Rs. 12,75,000 gross, this means zero tax, logical relief, and a fair mechanism that avoids tax shocks for small income jumps. 

Stay informed. Stay tax-wise.