Run any new tax regime tax calculator for FY 2025-26 with a total income of ₹12,00,000. The output: zero tax.
Now change the income to ₹12,00,001 — a single rupee more. The output: ₹62,400 in tax.
Yes, adding one rupee to your annual income triggered a ₹62,399 tax hit. This is the "₹12 lakh cliff", and it's the most important thing to understand about the current new tax regime.
Why the cliff exists
Under the FY 2025-26 (AY 2026-27) new regime, the slabs work like this:
| Income Range | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4L – ₹8L | 5% |
| ₹8L – ₹12L | 10% |
| ₹12L – ₹16L | 15% |
| ₹16L – ₹20L | 20% |
| ₹20L – ₹24L | 25% |
| Above ₹24L | 30% |
By the slab math alone, taxable income of ₹12,00,000 attracts ₹60,000 of tax (₹4L × 5% + ₹4L × 10% = ₹20,000 + ₹40,000).
But Section 87A of the Income Tax Act gives a rebate — a tax cancellation — if your total income does not exceed ₹12,00,000 in the new regime. The rebate is up to ₹60,000, which exactly wipes out the ₹60,000 slab tax on ₹12 lakh income. Net tax: zero.
Cross the ₹12,00,000 threshold by even ₹1 and you lose eligibility for the rebate entirely. The full slab tax now applies. That's why one extra rupee costs ₹60,000+ (plus 4% cess).
The cliff for salaried people is at ₹12.75 lakh, not ₹12 lakh
The ₹12L rebate is on total income. Salaried people get a ₹75,000 standard deduction. So a salaried person with gross salary up to ₹12,75,000 still ends up with ₹12,00,000 taxable income → zero tax.
Cross ₹12,75,000 gross → the taxable amount goes over ₹12L → rebate lost → tax starts. Here is what happens in the marginal-relief zone and beyond:
| Gross Salary | Taxable (after ₹75K std ded) | Tax Under New Regime |
|---|---|---|
| ₹12,75,000 | ₹12,00,000 | ₹0 (rebate) |
| ₹13,00,000 | ₹12,25,000 | ~₹26,000 (marginal relief) |
| ₹13,50,000 | ₹12,75,000 | ~₹78,000 (full slab math) |
| ₹15,00,000 | ₹14,25,000 | ₹97,500 |
| ₹20,00,000 | ₹19,25,000 | ₹2,29,000 |
Run the exact numbers in our FY 2025-26 income tax calculator.
Planning around the cliff
If your gross salary is landing in the ₹12.75L – ₹14L range, three moves keep you on the good side:
- Time your bonus: if a discretionary bonus will push you over, and it can be paid in the next financial year instead, ask HR. Same total money, one whole financial year of rebate preserved.
- Employer NPS contribution: Section 80CCD(2) is available even in the new regime. Up to 10% of Basic can go into NPS from the employer's side — reducing your taxable salary without reducing take-home cash.
- Compare regimes before deciding: if you have deductions available (HRA, home-loan interest, 80C), the old regime may beat new even at incomes above ₹12L. Compare in our old vs new regime guide.
What about the AY 2025-26 (FY 2024-25) calculator?
Filing a return for last year? The rebate was different — capped at ₹25,000 with a ₹7 lakh threshold. So the "cliff" was at ₹7 lakh instead. If you're filing a delayed or revised return for FY 2024-25, use our AY 2025-26 tax calculator, which has the older slabs and rebate correctly built in.
The bigger point
The new tax regime is designed with these cliffs on purpose — to keep the "zero tax up to X" headline while still collecting revenue from earners just above. The best defence is a plain calculator that shows you old vs new side-by-side with your actual numbers, not a headline.
Try the FY 2025-26 tax calculator, plug in your gross, and check both regimes. The difference is often ₹40,000–₹1,00,000 a year.