How much income is tax-free in India for AY 2026-27?
Under the new tax regime for AY 2026-27 (the default), income up to ₹12 lakh is effectively tax-free for resident individuals, thanks to the enhanced Section 87A rebate. For a salaried person, the ₹75,000 standard deduction pushes the zero-tax point to about ₹12.75 lakh. Under the old regime, the basic exemption is ₹2.5 lakh (₹3 lakh for senior citizens, ₹5 lakh for super-seniors), but deductions like 80C and HRA can make a much higher income tax-free.
"How much can I earn without paying any income tax?" is the single most common tax question in India — and for AY 2026-27 the answer changed in a big way. This guide explains exactly how much income is tax-free under both the new and old regimes, how the ₹12 lakh figure works, what the standard deduction adds, and shows real worked examples so you can see where you stand.
1What 'tax-free income' actually means
There are two different ideas people mix up. The first is the basic exemption limit — the income below which no tax is charged at all. The second is the rebate under Section 87A — where tax is calculated but then fully waived up to a certain income. For AY 2026-27, the new regime's headline ₹12 lakh figure comes from the rebate, not the exemption.
2New regime: the ₹12 lakh rebate
The new regime is now the default. Tax is computed on the slabs below, but the Section 87A rebate wipes out the entire tax if your total income is up to ₹12 lakh. So a person with ₹12 lakh income pays zero tax.
For salaried individuals, the ₹75,000 standard deduction is subtracted first — so a salary of about ₹12.75 lakh becomes ₹12 lakh taxable, and still attracts no tax. Above ₹12 lakh, slab rates apply, but a 'marginal relief' rule softens the jump for incomes just over the line.
3Old regime: exemption plus deductions
The old regime keeps a ₹2.5 lakh basic exemption (₹3 lakh for those 60+, ₹5 lakh for those 80+). On its own that is lower — but the old regime lets you stack deductions that the new regime doesn't allow.
By claiming the ₹50,000 standard deduction, 80C (₹1.5 lakh), 80D health insurance, HRA, and home-loan interest, many salaried taxpayers legally bring a ₹10–12 lakh salary down to little or no tax. The catch is you must actually make those investments and payments.
4Worked examples
Under the new regime for AY 2026-27:
- Salaried employee earning ₹12.75 lakh: minus ₹75,000 standard deduction = ₹12 lakh taxable → 87A rebate applies → ₹0 tax.
- Freelancer with ₹12 lakh net income (no standard deduction): income is exactly ₹12 lakh → 87A rebate applies → ₹0 tax.
- Salaried employee earning ₹15 lakh: above the rebate, so tax is payable on the slabs — about ₹97,500 including cess under the new regime.
5Where the ₹12.75 lakh figure comes from
The number quoted everywhere is ₹12.75 lakh, and it is worth understanding rather than memorising, because it applies only to salaried taxpayers.
Under the new regime the section 87A rebate takes tax to nil on taxable income up to ₹12 lakh. A salaried taxpayer also gets a ₹75,000 standard deduction, which is subtracted before you reach taxable income. So gross salary of ₹12.75 lakh becomes ₹12 lakh taxable, and the rebate finishes the job.
6Age changes nothing under the new regime
Under the old regime the basic exemption rises with age: ₹2.5 lakh generally, ₹3 lakh for a resident senior citizen aged 60 or above, and ₹5 lakh for a super-senior citizen aged 80 or above.
The new regime has no age-based distinction at all. Everyone gets the same ₹4 lakh basic exemption. For a super-senior citizen with modest income and no deductions to claim, this is one of the few situations where the old regime can still be the better choice on the exemption alone.
7Receipts that are exempt whichever regime you choose
Separately from slabs and rebates, some receipts are not taxable in the first place, and these apply under both regimes.
- Agricultural income, though it is aggregated to determine the rate on your other income
- Long-term capital gains on listed equity and equity mutual funds up to ₹1.25 lakh in a financial year
- Maturity proceeds of PPF, and EPF withdrawal after five years of continuous service
- Gratuity within the statutory limit, and leave encashment on retirement within the prescribed ceiling
- Amounts received under a life insurance policy, subject to the premium-to-sum-assured conditions
8Nil tax does not mean no filing
The rebate removes the tax. It does not remove the obligation to file, and conflating the two is how people end up with a section 234F fee on a return that owed nothing.
The filing threshold is tested on total income before Chapter VI-A deductions, against the basic exemption limit — not against the ₹12 lakh rebate ceiling. So someone earning ₹9 lakh under the new regime pays no tax but must still file.
- Filing is also mandatory regardless of income if you have deposited over ₹1 crore in current accounts, spent over ₹2 lakh on foreign travel, or paid over ₹1 lakh in electricity bills in the year
- It is mandatory if you hold any foreign asset or are a signing authority on a foreign account
- It is required to claim a refund of TDS already deducted, which is the most common reason a nil-tax filer should file anyway
| Total income | Tax 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% |
Key takeaways
- ₹12.75 lakh applies to salaried taxpayers: ₹12 lakh rebate ceiling plus the ₹75,000 standard deduction.
- Non-salary income gets no standard deduction, so the ceiling is ₹12 lakh.
- The new regime has no age-based exemption; the old regime gives ₹3 lakh at 60 and ₹5 lakh at 80.
- Nil tax does not remove the obligation to file.
- File anyway to reclaim TDS already deducted — that refund is otherwise lost.
Frequently asked questions
Is ₹12 lakh income completely tax-free?
Yes, under the new regime — the Section 87A rebate makes total income up to ₹12 lakh tax-free. A salaried person also gets the ₹75,000 standard deduction, so the salary break-even is about ₹12.75 lakh.
Do I still need to file an ITR if my income is tax-free?
Often yes. Filing is mandatory if your gross income (before deductions) crosses the basic exemption, if TDS was deducted, or if you have foreign assets. Even when not mandatory, filing creates a useful income record for loans and visas.
Is the ₹12 lakh limit available in the old regime too?
No — the ₹12 lakh rebate is specific to the new regime. The old regime's 87A rebate is smaller (tax-free up to ₹5 lakh income), but it allows deductions the new regime doesn't.
What about senior citizens?
Under the old regime, the basic exemption is ₹3 lakh for those aged 60–79 and ₹5 lakh for those 80+. Under the new regime, the ₹12 lakh rebate applies regardless of age.
Why is the figure ₹12.75 lakh for some people and ₹12 lakh for others?
The rebate operates on taxable income up to ₹12 lakh. A salaried taxpayer or pensioner also gets a ₹75,000 standard deduction before reaching taxable income, so ₹12.75 lakh gross becomes ₹12 lakh taxable. Someone with business, rental or interest income gets no standard deduction, so their ceiling is ₹12 lakh.
Which receipts are exempt regardless of which regime I choose?
Agricultural income (though it is aggregated to set the rate on your other income), long-term capital gains on listed equity up to ₹1.25 lakh a year, PPF maturity, EPF after five years of continuous service, and gratuity and leave encashment within their statutory ceilings.
Am I required to file even if I owe nothing?
Often yes. The filing threshold is tested against the basic exemption limit, not the rebate ceiling. Filing is also mandatory regardless of income if you hold a foreign asset, deposited over ₹1 crore in current accounts, spent over ₹2 lakh on foreign travel or paid over ₹1 lakh in electricity bills.
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General information for AY 2026-27, not professional advice. Laws change with each Finance Act, notification or amendment and depend on your specific facts — verify the current position with a licensed CA or advocate before acting.