New Tax Regime for Tax Year 2026–27: Slabs, ₹12 Lakh Rebate and the Deduction Trade-Off

By CA Nikhil Gupta · 20 July 2026

The 2026–27 regime retains the expanded slab structure introduced in the preceding year. A resident individual can receive rebate on eligible regular income up to the prescribed limit, but ‘no tax up to ₹12 lakh’ has important conditions.

From 1 April 2026, the Income-tax Act, 2025 is operational, while the Finance Act sets the annual rates. For a salaried individual using the new regime, the ₹75,000 standard deduction can make gross salary of ₹12.75 lakh correspond to taxable regular income of ₹12 lakh, assuming no other income.

The rebate headline should not be extended automatically to special-rate capital gains, lottery income or every taxpayer category.

The slab ladder

For regular income in the new regime for tax year 2026–27, the illustrative slab schedule is:

Cess and surcharge apply as prescribed. The rate on the final slice is not the effective rate on total income.

How the ₹12 lakh rebate headline works

A qualifying resident individual with eligible total income up to ₹12 lakh can receive rebate under the current framework, subject to the legal treatment of special-rate income and other conditions. The rebate offsets computed tax; it is not an increase in the basic exemption limit.

Marginal relief is designed to prevent a small income increase above the rebate threshold from producing a disproportionate tax jump, within the prescribed mechanics.

The ₹12.75 lakh salary bridge

Where gross salary is ₹12.75 lakh and the only deduction is the ₹75,000 standard deduction, taxable income becomes ₹12 lakh. In the simple salary-only case, the rebate can reduce regular slab tax to nil.

Employer benefits, interest, rent, capital gains or taxable perquisites can push total income above the threshold. ‘Salary up to ₹12.75 lakh is tax-free’ is therefore a scenario, not a universal statutory sentence.

What the new regime gives up

The new regime generally restricts many familiar exemptions and deductions, including common HRA and Chapter VI-A claims, subject to the current list of permitted items. Eligible employer contribution to NPS and certain other reliefs may remain available under the applicable provisions.

The old regime may still be competitive for a taxpayer with large genuine HRA, home-loan interest and eligible deductions. Artificial investments made only for tax should not drive the comparison.

Who can switch and how

Individuals without business or professional income generally have greater flexibility to choose between regimes in the return, subject to current rules. Those with business or professional income face option forms and restrictions on switching.

Payroll selection controls TDS but does not always settle the final return option. The choice should be reviewed before filing and documentation retained.

Practical Checklist

• Use the correct tax year and current Finance Act rates.
• Separate regular income from special-rate income.
• Apply the standard deduction only to eligible salary or pension income.
• Test rebate and marginal relief rather than using a headline threshold.
• Compare actual old-regime exemptions and deductions with the new regime.
• Complete any required option form and align payroll with the final return.

Article-Specific Q&A

Is income up to ₹12 lakh fully exempt?

The basic exemption is not ₹12 lakh. A qualifying resident individual can receive rebate on eligible tax when total income is within the prescribed limit, subject to special-rate and other rules.

Why do people say salary up to ₹12.75 lakh can be tax-free?

Because the ₹75,000 standard deduction can reduce ₹12.75 lakh of salary-only gross income to ₹12 lakh taxable income in a simple case.

Does the rebate cover long-term capital gains?

Special-rate income has separate rebate treatment and should not be assumed to be fully covered. Compute it using the current statutory rules.

Can I claim HRA in the new regime?

The common HRA exemption is generally not available in the new regime. Verify the current permitted deduction list for the relevant tax year.

Is employer NPS contribution still relevant?

Eligible employer contribution can remain deductible within prescribed conditions and limits under the applicable framework. Payroll and NPS evidence should be maintained.

Can a salaried person change regimes at return filing?

A person without business or professional income generally has flexibility subject to current rules. Payroll TDS choice does not always prevent a different final return choice.

Does crossing ₹12 lakh by ₹10,000 create tax of more than ₹10,000?

Marginal relief is intended to limit a disproportionate jump around the rebate threshold, subject to the prescribed computation.

Sources and Verification Trail

• Union Budget 2026–27: Official Finance Act and rate documents for tax year 2026–27.
• Income Tax Department: Official current tax guidance and return utilities.
• PIB Budget 2026–27: Official communication on the Income-tax Act, 2025 transition and direct-tax measures.

Editorial Note

This article is written for education and general awareness. Tax, regulatory and employment outcomes depend on facts, dates, notifications and documentation. Verify the current law and obtain professional advice before acting.

Keywords: new tax regime 2026-27 · tax slabs · 87A rebate · old vs new regime