Salary Tax Calculator 2026-27 — Zero Tax up to ₹12.75 Lakh, New Sections, and Which Regime Actually Wins for You
TL;DR
- Salary up to ₹12.75 lakh = zero tax under New Regime — legally, no tricks needed
- Income Tax Act 1961 replaced by Income Tax Act 2025 from April 1, 2026
- Section 80C is now Section 123. New Regime default is now Section 202
- Standard deduction of ₹75,000 applies to both regimes
- New Regime wins for most salaried employees at every salary tier from ₹12L to ₹25L
- Bengaluru, Hyderabad, Pune and Ahmedabad now qualify as metro cities for HRA
The ₹12.75 Lakh Number You Need to Understand
If your salary is ₹12.75 lakh or below, your income tax bill this year is ₹0. Not a rounding error. Not a special scheme. Just the way the numbers work out under the new Income Tax Act 2025.
Most people have heard this figure floating around since Budget 2025. Fewer have actually seen the calculation. Here it is, step by step:
Your gross salary is ₹12,75,000. The standard deduction of ₹75,000 applies to all salaried employees — in both regimes. After that deduction, your taxable income is exactly ₹12,00,000.
Now the slabs kick in:
- ₹0 to ₹4L: 0% = ₹0
- ₹4L to ₹8L: 5% = ₹20,000
- ₹8L to ₹12L: 10% = ₹40,000
Total tax before rebate: ₹60,000.
Then Section 87A rebate wipes it out entirely — because your taxable income is exactly ₹12 lakh, which is the threshold below which the full rebate applies.
Final tax: ₹60,000 minus ₹60,000 = ₹0.
That is the ₹12.75 lakh zero-tax logic. Clean, legal, and available to every salaried employee who stays in the New Regime.
What Changed From April 1, 2026
The Income Tax Act 1961 — which governed Indian taxation for 65 years — was replaced by the Income Tax Act 2025 on April 1, 2026. This is not cosmetic. The structure, section numbers, and some definitions have genuinely changed.
The "Assessment Year" is gone. Previously, you earned income in the "Previous Year" and filed returns in the "Assessment Year." That distinction has been abolished. Everything is now referred to simply as the Tax Year. You earned in Tax Year 2026, you file for Tax Year 2026. Simpler in principle — though you will still see the old terminology in older guides and forms for a while.
Section numbers have changed. The most confusing part for most people. Section 80C — the one everyone knows for PPF, ELSS, and life insurance — is now Section 123 under the new Act. The logic is the same, the limit is the same (₹1.5 lakh), but the reference number changed. When you are filling forms or talking to your CA, use the new numbers.
New Regime is now the default. Under Section 202, the New Regime is automatically applied unless you specifically opt out. This means your employer will deduct TDS under the New Regime starting this financial year. If you want the Old Regime, you have to actively tell your employer — and ultimately, you can override it at the time of filing your return.
New Regime Tax Slabs — FY 2026-27
| Income Range | Tax Rate |
|---|---|
| ₹0 – ₹4,00,000 | 0% |
| ₹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% |
Standard deduction: ₹75,000 — applies to both New and Old Regime for salaried employees.
Section 87A rebate: Full rebate on tax liability if taxable income (after standard deduction) is ₹12,00,000 or below. This is what makes ₹12.75 lakh the effective zero-tax threshold.
What Your Tax Bill Actually Looks Like — Four Salary Tiers
The examples below use the following Old Regime assumptions — standard deductions most salaried employees can realistically claim:
- Section 123 (formerly 80C) investments: ₹1,50,000
- HRA exemption: ₹1,20,000
- NPS additional deduction (80CCD): ₹50,000
- Total Old Regime deductions: ₹3,20,000
₹12 Lakh Salary
| New Regime | Old Regime | |
|---|---|---|
| Gross Salary | ₹12,00,000 | ₹12,00,000 |
| Standard Deduction | ₹75,000 | ₹75,000 |
| Additional Deductions | — | ₹3,20,000 |
| Taxable Income | ₹11,25,000 | ₹8,05,000 |
| Tax on Slabs | ₹48,750 | ₹65,250 |
| Section 87A Rebate | ₹48,750 | — |
| Final Tax | ₹0 | ₹65,250 |
New Regime wins by ₹65,250. At ₹12 lakh, the zero-tax benefit of the New Regime is so strong that even claiming ₹3.2 lakh in deductions under the Old Regime cannot compete.
₹15 Lakh Salary
| New Regime | Old Regime | |
|---|---|---|
| Gross Salary | ₹15,00,000 | ₹15,00,000 |
| Standard Deduction | ₹75,000 | ₹75,000 |
| Additional Deductions | — | ₹3,20,000 |
| Taxable Income | ₹14,25,000 | ₹11,05,000 |
| Tax Calculation | ₹0+₹20k+₹40k+₹33,750 | ₹0+₹20k+₹30,500 |
| Final Tax | ₹93,750 | ₹50,500 |
Old Regime wins by ₹43,250 at ₹15 lakh — but only if you can actually claim the full ₹3.2 lakh in deductions. If your HRA is lower or your 80C investments are not maxed out, the numbers shift. Use the Salary Calculator with your actual deductions to get your specific number.
₹18 Lakh Salary
| New Regime | Old Regime | |
|---|---|---|
| Gross Salary | ₹18,00,000 | ₹18,00,000 |
| Standard Deduction | ₹75,000 | ₹75,000 |
| Additional Deductions | — | ₹3,20,000 |
| Taxable Income | ₹17,25,000 | ₹14,05,000 |
| Tax Calculation | ₹0+₹20k+₹40k+₹60k+₹25k | ₹0+₹20k+₹40k+₹60,750 |
| Final Tax | ₹1,45,000 | ₹1,20,750 |
Old Regime wins by ₹24,250 at ₹18 lakh — but the gap is narrowing significantly compared to ₹15 lakh. As your salary grows, the New Regime's lower rates start closing the gap that deductions create.
₹25 Lakh Salary
| New Regime | Old Regime | |
|---|---|---|
| Gross Salary | ₹25,00,000 | ₹25,00,000 |
| Standard Deduction | ₹75,000 | ₹75,000 |
| Additional Deductions | — | ₹3,20,000 |
| Taxable Income | ₹24,25,000 | ₹21,05,000 |
| Tax Calculation | ₹0+₹20k+₹40k+₹60k+₹80k+₹1,00k+₹7,500 | ₹0+₹20k+₹40k+₹60k+₹80k+₹31,500 |
| Final Tax | ₹3,07,500 | ₹2,31,500 |
Old Regime wins by ₹76,000 at ₹25 lakh. At higher salaries, the value of the 30% bracket makes Old Regime deductions genuinely useful — particularly if you are maximising HRA in a metro city, NPS contributions, and Section 123 investments.
The pattern: New Regime wins decisively below ₹12.75L. Old Regime becomes competitive from ₹15L onwards if you can claim full deductions. At ₹25L+, Old Regime often wins — but verify with your actual numbers.
The Confusion Zone — What Actually Changed in the New Act
HRA — Four New Metro Cities
This is one of the most significant changes for urban salaried employees. Previously, only four cities qualified for the 50% HRA exemption limit — Delhi, Mumbai, Chennai, and Kolkata. From FY 2026-27, four more cities have been added:
Bengaluru, Hyderabad, Pune, and Ahmedabad now qualify as metro cities for HRA calculation purposes.
If you live in Bengaluru and were previously claiming only 40% of basic salary as HRA exemption, you can now claim up to 50%. This materially affects the Old Regime calculation for employees in these cities.
New landlord disclosure requirement: If you are claiming HRA exemption, you must now declare your relationship with your landlord. This was introduced to curb the common practice of paying rent to family members to claim exemption without a genuine rental arrangement.
Allowances That Changed — But Only in Old Regime
Two allowances saw major increases, but they only apply under the Old Regime:
- Children's Education Allowance: Raised from ₹100/month to ₹3,000/month per child (max 2 children). If you have two children, that is ₹72,000 per year in tax-exempt allowance — up from ₹2,400.
- Hostel Allowance: Raised from ₹300/month to ₹9,000/month. If your employer pays hostel allowance, up to ₹1,08,000 per year is now tax-exempt.
Neither of these is available in the New Regime. If your employer pays these allowances and you can claim the full amounts, this tilts the calculation further toward Old Regime.
Food coupons: The per-meal tax-free limit has been raised from ₹50 to ₹200. If your employer provides meal vouchers or a food allowance, up to ₹200 per meal is now tax-exempt in both regimes. This is a small but real benefit if your employer provides this perk.
Can You Switch Regimes?
Yes, if you are a salaried employee with no business income. You can switch between Old and New Regime every year at the time of filing your return.
Your employer defaults to the New Regime for TDS deduction — which means your monthly salary deductions are calculated assuming New Regime slabs. If you want your employer to deduct TDS under the Old Regime, you need to submit a declaration to your HR or payroll team at the start of the financial year.
If TDS was already deducted under the wrong regime: This happens more than people realise, especially in April when the new financial year begins and decisions are not yet made. The fix is straightforward — file your return under the correct regime. If excess TDS was deducted, you get a refund. If there is a shortfall, you pay the difference while filing. The TDS is an estimate; the return is the final reckoning.
Business income changes this: If you have income from a business or profession in addition to salary, switching out of the Old Regime has consequences — you cannot easily switch back. Consult a CA before changing regimes if you have any business income.
Use the Calculator — Skip the Spreadsheet
The worked examples above use standard assumptions. Your actual numbers depend on your specific HRA, the city you live in, what investments you make, and what allowances your employer pays.
Rather than building a spreadsheet, use the PlanivestFin Salary Calculator — enter your CTC and it calculates your in-hand salary and tax liability under both regimes side by side, using the Income Tax Act 2025 slabs. Takes 30 seconds.
For a broader picture of how your salary fits into your overall wealth plan — combining SIP investments, FD returns, and NPS corpus — the Wealth Calculator shows everything in one view.
Frequently Asked Questions
Is ₹12 lakh income completely tax-free in 2026?
Not automatically, and the wording matters. If your taxable income — meaning your salary after the ₹75,000 standard deduction — is ₹12 lakh or below, then Section 87A rebate wipes out your entire tax liability. That is why the effective zero-tax salary is ₹12,75,000, not ₹12,00,000. The ₹75,000 standard deduction is what creates that ₹75,000 buffer.
Does the ₹75,000 standard deduction apply to both regimes?
Yes. The standard deduction of ₹75,000 applies to salaried employees under both New and Old Regime from FY 2026-27 onwards. This was previously only available in the New Regime, so if you were on Old Regime and not getting the standard deduction, that has changed.
What is Section 123 in the new Income Tax Act?
Section 123 is the renamed version of Section 80C. The investments that qualify — PPF, ELSS mutual funds, life insurance premiums, principal repayment on home loans, tuition fees — remain the same. The deduction limit remains ₹1,50,000 per year. Only the section number changed. It is only available under the Old Regime.
How to calculate HRA for Bengaluru in 2026?
Bengaluru is now treated as a metro city. The HRA exemption you can claim is the lowest of: actual HRA received from employer, 50% of basic salary (metro rate), or actual rent paid minus 10% of basic salary. Previously the limit was 40% of basic salary for Bengaluru — the upgrade to 50% makes a meaningful difference for employees with higher salaries.
Can I switch to Old Regime after TDS has been deducted?
Yes. TDS is deducted by your employer as an advance estimate throughout the year. The final tax calculation happens when you file your return. At that point you choose your regime, compute actual liability, and either receive a refund (if TDS was excess) or pay the balance. The regime chosen at filing is what counts, not what your employer used for TDS.
Related Reading
- Old vs New Tax Regime 2026-27 — Which One Should You Choose? — Detailed comparison with worked examples across salary levels
- New Income Tax Act 2025 — What Actually Changes — Full structural overview of the Act changes
- Goal-Based Investing — How to Invest the Tax You Save — Put your tax savings to work systematically
Last reviewed: April 2026 — PlanivestFin Research Team
Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Tax laws are complex and individual situations vary. Please consult a SEBI-registered investment advisor or chartered accountant before making tax decisions. All figures are based on Income Tax Act 2025 as applicable from April 1, 2026.