Tax Free Income Guide for AY 2026-27
A complete guide to tax-free income limits, exemptions, and allowances in India. Understand the basic exemption limits under both tax regimes and maximize your tax-free earnings.
The content on this page provides general guidance on tax-free income limits and exemptions. For complete details and personalized advice, refer to the Income Tax Act, Rules, and official e-Filing resources.
Basic Exemption Limits
The basic exemption limit is the threshold below which no income tax is payable. This differs based on your age and the tax regime you choose.
| Age Group | Basic Exemption Limit | Note |
|---|---|---|
| Below 60 years | ₹4,00,000 | Same limit for all |
| Senior Citizen (60-80 years) | ₹4,00,000 | No special treatment |
| Super Senior Citizen (80+ years) | ₹4,00,000 | No special treatment |
The new tax regime has the same exemption limit for all age groups, but Rebate 87A extends tax-free income to Rs 7 lakh.
| Age Group | Basic Exemption Limit | Tax Rate on Next Slab |
|---|---|---|
| Below 60 years | ₹2,50,000 | 5% on ₹2,50,001 - ₹5,00,000 |
| Senior Citizen (60-80 years) | ₹3,00,000 | 5% on ₹3,00,001 - ₹5,00,000 |
| Super Senior Citizen (80+ years) | ₹5,00,000 | 20% on ₹5,00,001 - ₹10,00,000 |
The old tax regime provides higher exemption limits for senior and super senior citizens, but less than the new regime's effective limit with rebate.
Rebate 87A
Rebate under Section 87A provides additional tax relief, effectively increasing the tax-free income limit significantly.
| Description | Amount |
|---|---|
| Basic Exemption Limit | ₹4,00,000 |
| Rebate 87A Limit | ₹12,00,000 |
| Maximum Tax-Free Income | ₹7,00,000 |
Under the new tax regime, if your taxable income is up to ₹7,00,000, your tax liability is fully rebated, making it effectively zero. Tax is nil on the first ₹4,00,000, and the rebate covers the 5% tax on the next ₹3,00,000.
| Description | Amount |
|---|---|
| Basic Exemption Limit (Below 60) | ₹2,50,000 |
| Rebate 87A Limit | ₹5,00,000 |
| Maximum Tax-Free Income | ₹5,00,000 |
Under the old tax regime, if your taxable income is up to ₹5,00,000, the full tax liability (including the 5% on the next ₹2,50,000) is rebated, making income up to ₹5 lakh tax-free.
Tax-Free Allowances
Several allowances provided by employers are either fully or partially exempt from tax. Understanding these can help you structure your salary package optimally.
LTA is tax-exempt for actual travel costs within India, subject to specified conditions. Usually available once in a block of 4 years. The exemption is limited to actual travel expenses or economy class air/rail fare, whichever is lower.
HRA is partially exempt. The least of: (a) HRA received, (b) 50% of salary (40% for non-metro cities), or (c) actual rent paid minus 10% of salary, is exempt from tax. The remaining HRA is taxable as salary income.
Conditions: You must actually pay rent, and the accommodation should not be owned by you or your spouse.
Allowance given for purchase and maintenance of uniforms, official dresses, or specific clothing required for job duties is fully tax-free if the allowance is specifically for uniforms and actual expenses are incurred.
Reimbursement or allowance for official phone/mobile expenses is fully tax-free when it's used primarily for business purposes and proper bills/vouchers are maintained.
Meal vouchers or food coupons provided by employers are tax-free up to ₹50 per meal (or as per latest CBDT guidelines). The exemption applies when these are in the form of paper vouchers or meal cards and not cash.
Education allowance for children is exempt up to ₹100 per month per child (maximum 2 children). Hostel allowance is exempt up to ₹300 per month per child.
Other Tax-Free Incomes
Beyond salary allowances, several other types of income are completely exempt from tax.
Agricultural income up to ₹5,000 per financial year is exempt under Section 10(1). If it exceeds this limit, it gets added to your total income for tax calculation purposes, but may qualify for partial relief under certain conditions.
Interest earned on Employee Provident Fund (EPF) is tax-free up to ₹2,50,000 per financial year. This limit applies to the combined interest from EPF, PPF, and other notified savings instruments.
Maturity proceeds from a life insurance policy are tax-free under Section 10(10D) if: (a) premium paid does not exceed 10% of sum assured for policies issued after April 2012, and (b) the policy is not for a term less than 5 years. Death benefits are always tax-free.
Gratuity received on retirement is tax-free up to ₹20,00,000 (as of latest guidelines). Any amount above this limit is taxable as salary income.
Leave encashment at retirement is tax-free up to ₹25,00,000 (for government employees) or actual encashment subject to conditions for private sector employees. For ongoing employees, it's taxable as salary.
Interest earned on savings bank accounts is tax-free up to ₹10,000 per year under Section 80TTA for non-senior citizens (Section 80TTB for senior citizens: ₹50,000).
Practical Examples
See how tax works at various income levels under the new tax regime with standard deduction.
| Gross Salary | Taxable Income (After Std. Deduction ₹75,000) | Tax Before Rebate | Rebate 87A | Final Tax |
|---|---|---|---|---|
| ₹4,00,000 | ₹3,25,000 | Nil | Nil | ₹0 |
| ₹5,00,000 | ₹4,25,000 | ₹1,250 | ₹1,250 | ₹0 |
| ₹6,00,000 | ₹5,25,000 | ₹6,250 | ₹6,250 | ₹0 |
| ₹7,00,000 | ₹6,25,000 | ₹11,250 | ₹11,250 | ₹0 |
| ₹8,00,000 | ₹7,25,000 | ₹16,250 | Nil | ₹16,250 |
Calculations are approximate. Actual tax may vary based on exact income components and applicable deductions.
Tax Planning
For most salaried individuals with income up to ₹7 lakh, the new tax regime with Rebate 87A results in zero tax. Even at higher incomes, the lower slab rates may be beneficial if you don't have significant deductions.
If you live in a rented accommodation, ensure your Form 12BB shows HRA details. The exemption can significantly reduce your tax if rent is high relative to salary.
Plan your domestic travel to claim LTA exemption. Remember it's available once in a block of 4 years, so plan ahead to not lose out on this benefit.
Under the old regime, deductions like 80C (₹1.5 lakh), 80D (₹25,000-50,000), 80CCD(1B) (₹50,000), and housing loan interest can reduce your taxable income significantly and push you into lower or zero tax brackets.
FAQ
Under the new tax regime (Section 115BAC), the basic exemption limit is ₹4,00,000 for all individuals (below 60, senior citizen, and super senior citizen). However, with Rebate 87A, income up to ₹7,00,000 becomes effectively tax-free.
Under the old tax regime: Below 60 years: ₹2,50,000; Senior citizen (60-80 years): ₹3,00,000; Super senior citizen (80+ years): ₹5,00,000. With Rebate 87A, income up to ₹5,00,000 becomes tax-free.
HRA (House Rent Allowance) is partially exempt. The least of: (a) HRA received, (b) 50% of salary (40% for non-metro cities), or (c) actual rent paid minus 10% of salary, is exempt from tax. The remaining HRA is taxable.
Agricultural income up to ₹5,000 per financial year is exempt from tax under Section 10(1). However, if agricultural income exceeds ₹5,000, the entire income may be added to total income for tax calculation purposes.
Interest on EPF (Employee Provident Fund) is tax-free up to ₹2,50,000 per financial year. This limit applies to the total interest earned on EPF, PPF, and other specified savings instruments combined.
Yes, you can claim both HRA (if you're paying rent) and home loan interest (Section 24) simultaneously. However, the home loan interest is claimed under the old tax regime, so you need to evaluate which regime works better for your overall tax situation.
The standard deduction under the new tax regime is ₹75,000 for salaried individuals and pensioners. This is automatically deducted from gross salary to arrive at taxable income.
Yes, LTA is tax-exempt for actual travel costs within India. The exemption is limited to actual travel expenses or economy class air/rail fare, whichever is lower. It's typically available once in a block of 4 years.