Marginal relief above ₹12 lakh
How the section 156 rebate and marginal relief work just above ₹12 lakh of taxable income in FY 2026-27, worked out to the rupee, including the 4% cess most explanations leave out.
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Under the new regime, the section 156 rebate (the old section 87A) cancels the tax on taxable income up to ₹12,00,000. Without anything else, crossing that line by a single rupee would take the rebate away entirely, and a salary with ₹12,00,001 of taxable income would owe ₹62,400 in tax and cess. Marginal relief exists so that this cliff never happens.
What the relief does
Section 156(2)(b) of the Income-tax Act, 2025 caps the income-tax at the amount by which your taxable income exceeds ₹12,00,000. At ₹12,10,000 of taxable income, the ordinary slab tax would be ₹61,500; the relief cuts it to ₹10,000, the income above the limit.
The relief stops mattering once the ordinary slab tax falls below the income above the limit. That happens at ₹12,70,588 of taxable income. Above it, you simply pay the slab tax.
The part most explanations leave out: the 4% cess
The health and education cess is charged on the tax after the rebate, so it applies to the capped amount too. Inside the band, every extra rupee of taxable income therefore costs ₹1.04: the rupee itself, plus 4 paise of cess. You are never hit by the cliff, but you are not quite made whole either. At the top of the band you keep ₹2,824 less than someone with exactly ₹12,00,000 of taxable income.
| Taxable income | Tax without relief | Tax with relief | You keep |
|---|---|---|---|
| ₹11,90,000 | ₹0 | ₹0 | ₹11,90,000 |
| ₹12,00,000 | ₹0 | ₹0 | ₹12,00,000 |
| ₹12,00,001 | ₹62,400 | ₹1 | ₹12,00,000 |
| ₹12,10,000 | ₹63,960 | ₹10,400 | ₹11,99,600 |
| ₹12,25,000 | ₹66,300 | ₹26,000 | ₹11,99,000 |
| ₹12,50,000 | ₹70,200 | ₹52,000 | ₹11,98,000 |
| ₹12,60,000 | ₹71,760 | ₹62,400 | ₹11,97,600 |
| ₹12,70,588 | ₹73,412 | ₹73,412 | ₹11,97,176 |
| ₹12,75,000 | ₹74,100 | ₹74,100 | ₹12,00,900 |
| ₹12,90,000 | ₹76,440 | ₹76,440 | ₹12,13,560 |
| ₹13,00,000 | ₹78,000 | ₹78,000 | ₹12,22,000 |
The same band in salary terms
Taxable income is your salary less the ₹75,000 standard deduction and anything your employer puts into NPS for you. With the calculator's standard structure (Basic at half of CTC, PF at the wage ceiling, gratuity and employer PF inside the CTC), the relief band covers CTCs from roughly 13.4 to 14 lakh, and monthly take-home actually falls slightly across it.
| CTC | Taxable income | Tax and cess | In hand a month |
|---|---|---|---|
| ₹13,00,000 | ₹11,64,390 | ₹0 | ₹1,00,628 |
| ₹13,25,000 | ₹11,88,789 | ₹0 | ₹1,02,661 |
| ₹13,50,000 | ₹12,13,188 | ₹13,716 (relief) | ₹1,03,551 |
| ₹13,75,000 | ₹12,37,587 | ₹39,091 (relief) | ₹1,03,470 |
| ₹14,00,000 | ₹12,61,986 | ₹64,466 (relief) | ₹1,03,388 |
| ₹14,25,000 | ₹12,86,385 | ₹75,876 | ₹1,04,471 |
| ₹14,50,000 | ₹13,10,784 | ₹79,682 | ₹1,06,187 |
If a raise lands you in this band, it is worth asking whether part of it can go into employer NPS instead: the employer's contribution up to 14% of Basic is deductible under the new regime, so it lowers taxable income rather than being taxed at ₹1.04 per rupee.
Surcharge thresholds work the same way
A surcharge of 10% starts above ₹50 lakh of taxable income, 15% above ₹1 crore and 25% above ₹2 crore (the old regime adds 37% above ₹5 crore). At each threshold, tax plus surcharge is capped at the tax on the threshold plus the income above it, and the 4% cess is added on top, exactly as above.
The old regime has no such relief
The old regime's rebate covers taxable income up to ₹5 lakh and stops dead above it. At ₹5,00,001 of taxable income the old regime charges ₹13,000, a genuine cliff that no taper softens.
Why calculators get this wrong
Many salary calculators treat the rebate as a switch: full rebate up to ₹12 lakh, nothing above. Just past the line they then show take-home falling by up to ₹5,200 a month, as if a raise had made someone poorer. Others describe the relief correctly but forget the cess and claim that earning more can never leave you worse off. Both are wrong. This calculator applies the cap exactly as section 156(2)(b) reads, and the cess on top of it.
Sources: Income-tax Act, 2025, section 156 (rebate and marginal relief) and section 202 (new regime slabs); Finance Act 2026, section 3 (surcharge and the 4% health and education cess). Full method.