The statement “No tax payable up to ₹12 lakhs” has become one of the most widely circulated claims under the new tax regime. While the statement is technically correct, it is often misunderstood. Tax is not automatically zero up to ₹12 lakhs. The real reason behind this outcome lies in Section 87A of the Income-tax Act, 1961—a rebate provision that operates after tax is computed.
Let us break down the complete truth behind this claim, without oversimplification.
Income tax liability begins the moment your total income crosses the Basic Exemption Limit:
Old (Optional) Tax Regime: ₹2,50,000
New (Default) Tax Regime – Section 115BAC: ₹4,00,000
Once income exceeds these thresholds, tax is calculated as per applicable slab rates. Therefore, strictly speaking, tax does arise well before ₹12 lakhs.
So how does the “zero tax up to ₹12 lakhs” result emerge?
Section 87A provides a tax rebate to eligible resident individuals, which can reduce the final tax liability to nil, even after tax has been computed under slab rates.
This is not an exemption of income—it is a rebate on tax payable.
To avail the benefit of Section 87A, all of the following conditions must be satisfied:
The taxpayer must be a Resident Individual
Total income (after deductions, if any) must not exceed the prescribed limit
The benefit is not available to:
HUFs
Firms / LLPs
Companies
| Particulars | Old Regime | New Regime |
|---|---|---|
| Maximum Total Income | ₹5,00,000 | ₹12,00,000 |
| Maximum Rebate | ₹12,500 | ₹60,000 |
| Rebate Allowed | Lower of: | |
| a) Tax payable | ||
| b) Prescribed limit | Same principle |
Effectively, if the calculated tax is fully absorbed by the rebate, the net tax becomes zero.
Rebate under Section 87A is available only to resident individuals
It applies to all income except LTCG taxable under Section 112A
Rebate is adjusted before adding Health and Education Cess (4%)
Even a ₹1 increase beyond ₹5,00,000 (old regime) or ₹12,00,000 (new regime) can eliminate the rebate entirely
Rounding off rules under Sections 288A and 288B apply to total income and tax
Under the new regime, the concept of marginal relief becomes critical once income slightly exceeds ₹12 lakhs
| Particulars | Case 1 | Case 2 |
|---|---|---|
| Total Income | ₹4,99,900 | ₹5,00,100 |
| Tax Liability | ₹12,495 | ₹12,520 |
| Rebate u/s 87A | ₹12,495 | Not Available |
| Tax After Rebate | Nil | ₹12,520 |
| Health & Education Cess (4%) | Nil | ₹501 |
| Net Tax Payable | Nil | ₹13,021 |
| Particulars | Case 1 | Case 2 |
|---|---|---|
| Total Income | ₹11,99,900 | ₹12,00,100 |
| Tax Liability | ₹59,990 | ₹60,015 |
| Rebate u/s 87A | ₹59,990 | Not Available |
| Tax After Rebate | Nil | ₹60,015 |
| Health & Education Cess (4%) | Nil | ₹2,401 |
| Net Tax Payable | Nil | ₹62,416 |
Yes—but only because of Section 87A.
Tax is calculated in the normal manner. It is the rebate, not the slab rate, that eliminates the final liability. Without Section 87A, tax would be payable much earlier.
Understanding this distinction is crucial for:
Accurate tax planning
Salary structuring
Avoiding surprises when income marginally exceeds thresholds
Section 87A is one of the most powerful relief provisions for low and middle-income taxpayers, but it is also one of the most misunderstood. The popular headline hides important conditions, exclusions, and technical nuances.
Once you understand how Section 87A works, the logic behind the “no tax up to ₹12 lakhs” claim becomes clear—and you can plan your income more efficiently and legally.
In the next part, we will decode Marginal Relief under the New Tax Regime and explain how it prevents sudden spikes in tax liability.
If you still have questions on Section 87A, feel free to raise them—clarity is always better than assumptions.
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