Under the new regime for FY 2026-27, taxable income of ₹12,00,000 attracts no income tax at all. The slabs produce ₹60,000 of tax and the Section 87A rebate cancels every rupee of it.
The obvious question follows immediately: what happens at ₹12,00,001? If the rebate simply vanishes, the answer is ₹60,000 of tax appearing on the back of one extra rupee — and you would be catastrophically worse off for earning it. That would be a genuine cliff, and it is what a great many people assume is there.
It isn't. The provision that removes it is marginal relief, and it works on a simple principle: the income tax charged cannot exceed the amount by which your income crosses the threshold.
What that means in rupees
Earn ₹12,10,000 of taxable income and you have crossed ₹12,00,000 by ₹10,000. So the income tax is capped at ₹10,000, rather than the ₹61,500 the slabs would otherwise produce. Add 4% cess and you pay ₹10,400.
Here is the full band, computed from the FY 2026-27 slabs.
| Taxable income | Slab tax | Tax without relief | Tax with relief |
|---|---|---|---|
| ₹12,00,000 | ₹60,000 | Nil (rebate) | Nil |
| ₹12,10,000 | ₹61,500 | ₹63,960 | ₹10,400 |
| ₹12,25,000 | ₹63,750 | ₹66,300 | ₹26,000 |
| ₹12,50,000 | ₹67,500 | ₹70,200 | ₹52,000 |
| ₹12,60,000 | ₹69,000 | ₹71,760 | ₹62,400 |
| ₹12,70,000 | ₹70,500 | ₹73,320 | ₹72,800 |
| ₹12,71,000 | ₹70,650 | ₹73,476 | ₹73,476 |
| ₹12,75,000 | ₹71,250 | ₹74,100 | ₹74,100 |
| ₹13,00,000 | ₹75,000 | ₹78,000 | ₹78,000 |
Read down the last two columns and you can see relief switch itself off. At ₹12,71,000 the two figures meet and stay together from there on. That is the point where ordinary slab tax has fallen below the excess over ₹12,00,000, so the cap stops binding. Above roughly ₹12,71,000 of taxable income, marginal relief is irrelevant to you.
The part nobody mentions: a 104% marginal rate
Now look at what each extra rupee costs inside the band. Going from ₹12,50,000 to ₹12,60,000 is ₹10,000 more income and ₹10,400 more tax. From ₹12,60,000 to ₹12,70,000, the same again.
| Step | Extra income | Extra tax | Effective marginal rate |
|---|---|---|---|
| ₹12,10,000 → ₹12,25,000 | ₹15,000 | ₹15,600 | 104% |
| ₹12,25,000 → ₹12,50,000 | ₹25,000 | ₹26,000 | 104% |
| ₹12,50,000 → ₹12,60,000 | ₹10,000 | ₹10,400 | 104% |
| ₹12,60,000 → ₹12,70,000 | ₹10,000 | ₹10,400 | 104% |
| ₹12,71,000 → ₹13,00,000 | ₹29,000 | ₹4,524 | 15.6% |
Throughout the relief band, the effective marginal rate is 104% — and then it drops to 15.6% the moment you clear it.
The extra 4 percentage points are not a rounding artefact. Marginal relief caps the income tax at the excess over ₹12,00,000, and the health and education cess is then charged at 4% on top of that capped figure. So ₹10,000 of additional income produces ₹10,000 of tax plus ₹400 of cess.
Which means the honest answer to "can earning more leave me worse off?" is: yes, very slightly. Not by ₹60,000 — the cliff is genuinely gone — but by the cess on the excess. Somewhere between ₹12,00,000 and ₹12,71,000 of taxable income, roughly ₹2,840 of your money quietly disappears relative to stopping at ₹12,00,000. It is a small, bounded loss, and most explanations of marginal relief state flatly that you can never be worse off, which is not quite true.
What this means if you are negotiating a raise
For a salaried employee claiming the ₹75,000 standard deduction, the relief band translates to roughly ₹12,75,000 to ₹13,46,000 of gross salary.
| Taxable income | Equivalent gross salary | Tax payable |
|---|---|---|
| ₹12,00,000 | ₹12,75,000 | Nil |
| ₹12,50,000 | ₹13,25,000 | ₹52,000 |
| ₹12,70,000 | ₹13,45,000 | ₹72,800 |
| ₹12,75,000 | ₹13,50,000 | ₹74,100 |
Take that first pair. At ₹12,75,000 gross you pay no tax, so you keep ₹12,75,000. At ₹13,25,000 gross you pay ₹52,000, so you keep ₹12,73,000. The ₹50,000 raise leaves you ₹2,000 worse off than not taking it.
That is a genuinely useful thing to know before you accept an offer in this range. It is not an argument for refusing a raise — the band is only about ₹71,000 wide, and once you are through it every further rupee is taxed at an ordinary 15.6%. But if you are being offered ₹13,25,000, asking for ₹13,60,000 is worth more than the ₹35,000 difference suggests, because it carries you clear of the band entirely.
One thing to check: a great many online tax calculators do not implement Section 87A marginal relief at all — they apply the rebate below ₹12,00,000, then jump straight to full slab tax above it. If a calculator tells you that ₹12,10,000 of taxable income owes about ₹64,000, it is showing you the cliff that the law removed. TallyBench's own regime calculator carried exactly this defect until we found it while writing this piece; it is fixed, and the figures in the tables above are what it now returns.
Two limits worth stating plainly
This is a new regime provision. The old regime has its own Section 87A rebate — ₹12,500, wiping out tax up to ₹5,00,000 of taxable income — but no equivalent marginal relief attaches to it. Cross ₹5,00,000 in the old regime and the rebate is simply gone.
Marginal relief also exists for surcharge, at ₹50,00,000, ₹1,00,00,000 and above. That is a separate provision doing a similar job at a much higher income, and it works the same way: the additional surcharge cannot exceed the additional income above the threshold. If you are anywhere near those figures, the arithmetic here does not apply to you and the surcharge bands are what matter.
Method
Everything above is computed from the FY 2026-27 (AY 2027-28) new-regime slabs: nil to ₹4,00,000, then 5%, 10%, 15%, 20%, 25% and 30% in ₹4,00,000 steps to ₹24,00,000. Standard deduction ₹75,000. Section 87A rebate of up to ₹60,000 applied at ₹12,00,000 of taxable income, with marginal relief capping income tax at the excess over ₹12,00,000. Health and education cess at 4% applied to the resulting figure. No surcharge applies at these income levels, and the tables assume no other deductions. Every row is reproducible in the regime calculator.