(INDIA) — Indian taxpayers are weighing the promise of “no income tax up to ₹12 lakh” under the new regime for Assessment Year 2026-27, but the benefit turns on a rebate mechanism, not a blanket exemption, and that distinction carries consequences for NRIs, returning residents and investors.

Under the new tax regime, a resident individual may get a rebate of up to ₹60,000 where total income does not exceed ₹12 lakh. Tax is still computed under slab rates first. The rebate then reduces the income-tax payable if the person meets the conditions.

That legal structure leaves room for tax liability even where total income sits near or below ₹12 lakh. Special-rate income, residential status, capital gains, foreign income and reporting errors can all change the outcome. The phrase “no tax up to ₹12 lakh” captures a common result, but not the rule in every case.

Under the Income-tax Act, 1961, the rebate provision sits in Section 87A. Under the Income-tax Act, 2025, the corresponding provision is Section 156. The new tax regime under the 1961 law is contained in Section 115BAC(1A), with the corresponding provision in the 2025 law set out in Section 202.

The distinction that matters most is simple. ₹12 lakh is not the basic exemption limit. Income up to that level does not disappear from tax computation; it remains taxable income, tax is calculated under the slab structure, and the rebate is allowed only if the taxpayer qualifies.

That difference between exemption and rebate affects filing behavior as much as final tax. An exemption removes income from the tax base. A rebate reduces tax after computation, which is why taxpayers may still need to file returns, disclose income correctly, report capital gains, and verify whether the rebate is actually available.

The issue carries added weight for NRIs. A non-resident Indian should not assume that the rebate under Section 87A applies automatically, because the benefit is linked to an individual resident in India under the traditional wording. Residential status must be determined first for the relevant financial year.

Returning Indians sit in a more complicated position because their status can shift from one year to the next. A person who was an NRI in earlier years may become resident in India later, and the rebate analysis changes with that status. A person may be an NRI, resident, or resident but not ordinarily resident depending on stay in India and other statutory conditions.

That calculation matters because returning residents often have mixed income streams. Indian salary, foreign salary, bank interest, NRE or NRO account interest, mutual fund gains, share sale gains, rental income, pension, ESOP income, foreign assets, or income from property sold in India can all sit in the same return. A headline tax promise does not sort those categories by itself.

NRE interest can lose exemption once residential conditions change. Some foreign income may become taxable in India after a person becomes resident. Tax deducted at source may not match final tax liability, and double taxation relief may require a separate analysis, leaving returning residents exposed if they rely on slab charts alone.

Investors face another layer of risk because income taxed at special rates may not receive the same treatment under the rebate mechanism. A taxpayer with salary or business income below ₹12 lakh may still owe tax if the return also includes short-term capital gains from listed equity, long-term capital gains from shares or equity mutual funds, debt fund gains, crypto income, or other special-rate income.

The same caution applies to capital gains on property, lottery, crossword, horse race, online gaming or similar winnings, crypto or virtual digital asset income, and unexplained cash credits, unexplained investments or unexplained expenditure. In each case, a taxpayer can remain within the widely discussed no income tax up to ₹12 lakh threshold in broad conversation and still see tax payable on the return.

A straightforward salary case shows why the public message caught on. If a resident individual has salary income of ₹12 lakh under the new regime and no special-rate income, tax is computed under the slab rates and the statutory rebate may reduce the liability to nil. The income is not exempt; the rebate wipes out the tax.

Add capital gains, and the position changes. A taxpayer with salary income plus short-term capital gains from shares should not assume that the rebate will erase the full amount due. Capital gains may be taxed under specific provisions and may need separate computation, a point that affects salaried employees trading equities as well as NRIs investing in Indian shares or mutual funds.

The same pattern appears in non-traditional income. A taxpayer whose ordinary income falls below ₹12 lakh may still owe tax if part of the total comes from crypto trading or online gaming. Students, freelancers, digital nomads and influencers with such income streams face that risk, because those receipts may fall under special provisions rather than ordinary slab-rate treatment.

Taxpayers also need to separate the old and new regimes before drawing conclusions. The ₹12 lakh headline mainly relates to the new tax regime. Under the old regime, the rebate structure is lower and the income threshold is lower, though the old system still allows deductions and exemptions that are not generally available under the new one.

That is why a simple comparison of slab headlines can mislead. Salary structure, house rent allowance, housing loan interest, insurance, provident fund, donations and other eligible claims can alter the final number under the old regime. Many salaried individuals with limited deductions may prefer the new regime, while others still need a side-by-side calculation.

The law also provides marginal relief for taxpayers whose income slightly exceeds ₹12 lakh under the new regime. The purpose is to avoid a result where a small increase in income produces a sharply higher tax bill. Marginal relief does not replace proper computation, and once income moves meaningfully above the threshold, normal slab liability applies.

Demand notices can still arrive even where a filer believed the rebate should reduce tax to zero. That can happen if the person was not eligible because of residential status, crossed the income threshold, included special-rate income, selected the wrong regime, reported capital gains under the wrong schedule, or failed to reflect tax deducted at source correctly.

Foreign income and assets can create another layer of difficulty, especially for returning residents. A person returning from the U.S. or the Gulf region may have Indian bank interest, foreign bank interest, salary income, capital gains and NRO account income in the same year. Whether global income becomes relevant depends on whether the person is resident and ordinarily resident, resident but not ordinarily resident, or non-resident.

That leaves the rebate mechanism as a calculation exercise rather than a slogan. Residential status for the year, the character of each income item, whether any income is taxed at special rates, whether NRE interest remains exempt, whether NRO income has TDS, whether capital gains are correctly reported, whether foreign assets require disclosure, whether DTAA relief applies, and whether the return utility allows the rebate all affect the final result.

Anyone filing under the new regime needs to compute tax first and test rebate eligibility after that, not the other way around. The phrase “no income tax up to ₹12 lakh” remains accurate for many resident individuals with ordinary income, but NRIs, returning residents, stock-market investors, crypto investors and others with special-rate income sit outside the easy version of that claim. In practice, the rebate mechanism decides whether the tax bill falls to zero.