New Tax Regime: 7 taxpayers to benefit from ₹12 lakh zero-tax threshold in 2026. Are you the one?

Ever since the announcement of no tax up to ₹12 lakh under the new tax regime, there has been a confusion among many taxpayers as to who can actually benefit.

Under the new tax regime, income up to ₹12 lakh becomes tax-free because of the rebate of up to ₹60,000 allowed under Section 87A. This rebate is available only for income up to ₹12 lakh, provided the income is from normal sources like salary, pension, interest, dividend, business, annuity schemes, etc.

The Income Tax Department says this:

Please note the list is not exhaustive. There can be many more taxpayer profiles who may pay Nil tax under the new regime due to the ₹12 lakh zero tax threshold.

This is because salaried taxpayer also get a standard deduction of ₹75,000. This makes their total salary income up to ₹12.75 lakh become tax-free. However, this benefit can disappear if the salary taxpayer also has long-term/short-term capital gains or any other special income.

Any non-salaried taxpayer having total income up to ₹12 lakh need to pay zero tax under the new tax regime. However, some tax liability can arise if the total income includes any special income.

The section 87A rebate does not apply if the total income is above ₹12 lakh. Even when the total income is below ₹12 lakh, special incomes can be taxed at special rates while the balance normal income remains tax-free due to the rebate. Back of the envelop calculation, however, shows that taxpayers having normal income of ₹10.75 lakh and LTCG of ₹1.25 lakh will pay zero tax. In this case, normal income becomes tax-free due the rebate and LTCG becomes tax-free because it is up to the LTCG exemption limit of ₹1.25 lakh.

A senior citizen having only pension income up to up to a limit of ₹12.75 lakh will pay nil tax under the new tax regime. This is because of the ₹75,000 standard deduction on normal pension under the new regime. However, there should not be any special income to be eligible for this benefit.

A senior citizen having only interest income from bank deposits up to a limit of ₹12 lakh will pay nil tax under the new tax regime.

Any other individual having only interest income from bank deposits, or even returns from debt mutual funds, up to ₹12 lakh/year pay nil tax under the new tax regime. Please note that, return from debt funds purchased after April 1, 2023, are taxed as normal income.

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NPS contribution up to 14% of Basic Salary and EPF contribution up to 12% of Basic by the employer are exempted from tax under the new regime. So employees having CTC above ₹12 lakh can pay zero tax if their EPF, NPS contributions, plus standard deduction, pull the total taxable income below the ₹12 lakh mark and there is no special income.