TaxSaral

Section 156 · was Section 87A in the 1961 Act

Tax Rebate — Zero Tax up to ₹12 Lakh

Under the default regime, if total income does not exceed ₹12,00,000, a rebate equal to the full tax liability is allowed — resulting in zero tax. Applies to resident individuals only.

Who it applies to: Resident individuals under the default regime whose total income (after all deductions) is ₹12L or below.

Key points

  • The ₹12L threshold is on 'total income' — gross salary minus standard deduction, not gross salary.
  • Above ₹12L, there is NO rebate — the full tax applies on the entire income.
  • Gross salary of ₹12,75,000 – ₹75,000 standard deduction = ₹12,00,000 → zero tax.
  • Special rate incomes (STCG, LTCG on equity) may not benefit from this rebate — they are taxed separately.

Worked examples

1. Exactly at the ₹12L threshold

Neha earns ₹12,75,000 gross salary. After standard deduction of ₹75,000, her total income is exactly ₹12,00,000.

Gross salary:        ₹12,75,000
Standard deduction: – ₹75,000
Total income:        ₹12,00,000

Tax computation:
  ₹0–4L:  Nil
  ₹4L–8L: 5% × ₹4L = ₹20,000
  ₹8L–12L: 10% × ₹4L = ₹40,000
  Total tax:           ₹60,000

Section 156 rebate: – ₹60,000
Final tax payable:   ₹0

Result: Neha pays zero income tax on ₹12.75L gross salary. This is the maximum salary at which the rebate gives complete zero-tax benefit under the default regime.

2. Planning salary components to stay under ₹12L

Vivek's CTC is ₹13.5L. His HR offers to restructure: ₹12,75,000 salary + ₹75,000 non-taxable components (mobile reimbursement, meal vouchers). Should he take it?

Option A — No restructuring:
  Total income: ₹13,50,000 – ₹75,000 SD = ₹12,75,000
  Tax: ₹60,000 (0–12L) + 15% × ₹75,000 = ₹60,000 + ₹11,250 = ₹71,250
  Plus cess: ₹74,100

Option B — With restructuring:
  Taxable salary: ₹12,75,000; non-taxable: ₹75,000
  Total income after SD: ₹12,00,000
  Rebate applies → ₹0 tax
  Savings: ₹74,100

Result: Vivek saves ₹74,100 by restructuring his CTC to bring taxable income to ₹12L. The ₹75,000 in non-taxable components is worth ₹74,100 in tax savings — making them effectively cash-equivalent.

Related sections

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative; verify with a Chartered Accountant before filing.