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The Indian government's Budget 2025-26 introduced significant changes to the income tax structure, providing substantial relief to taxpayers. A key highlight is the exemption of annual income up to ₹12 lakh from income tax through a rebate, effective from April 1st. This measure is designed to boost disposable income and stimulate economic activity. However, the potential for even higher income earners to avoid income tax is a particularly compelling aspect of this budget. A recent report in Livemint, citing calculations from Tax2win, illustrates how salaried individuals with a total cost-to-company (CTC) of ₹14.65 lakh can achieve a zero tax liability by strategically utilizing various tax provisions.
The pathway to zero tax liability for individuals earning ₹14.65 lakh annually involves leveraging deductions under the new tax regime. These deductions include the standard deduction of ₹75,000, the deduction under family pension (₹25,000, though this article does not detail the specific conditions of eligibility), employer contributions to the National Pension System (NPS) and the Employees' Provident Fund (EPF). The employer's contribution to the EPF, calculated at 12% of the basic salary, and the employer's contribution to the NPS, at 14% of the basic salary, play crucial roles in reducing the taxable income below the ₹12 lakh threshold. Assuming a basic pay representing 50% of the CTC, the combined effect of these deductions significantly lowers the taxable income, making zero tax a realistic outcome.
A detailed breakdown of the calculation reveals how this works. For a CTC of ₹14,65,000, a basic pay of ₹7,32,500 is assumed. The standard deduction of ₹75,000, along with the employer's EPF contribution of ₹87,900 (12% of ₹7,32,500) and the employer's NPS contribution of ₹1,02,550 (14% of ₹7,32,500), are subtracted from the gross income. This results in a taxable income of ₹11,99,550, which falls below the ₹12 lakh rebate limit, leading to zero tax liability. It's crucial to note, however, that this calculation relies heavily on the inclusion of both employer NPS and EPF contributions within the salary structure. According to Abhishek Soni, CEO and co-founder of Tax2win, this tax advantage of up to ₹14.65 lakh is only available to salaried employees with these structured employer contributions.
The article also provides a detailed explanation of the NPS and EPF schemes. The National Pension System (NPS) is a government-backed retirement savings scheme offering tax benefits under both the old and new tax regimes. Under the new regime, only the employer's contribution (up to 14% of basic salary + DA) is considered for tax deductions. NPS also qualifies as an Exempt-Exempt-Exempt (EEE) scheme, meaning contributions, investment growth, and withdrawals are tax-free. Employees' Provident Fund (EPF) is another retirement savings scheme where both employer and employee contribute 12% of the basic salary. Under the new tax regime, only the employer's contribution is eligible for tax deductions. A comparative table highlights the key features of NPS and EPF, including their tax-free annual income limits, standard deductions, employer contribution limits, interest rates, management fees, flexibility, and withdrawal taxation.
The article concludes by presenting the income tax slabs for the fiscal year 2026 (FY26) under the new tax regime. These slabs are: nil tax on income up to ₹4,00,000; 5% tax on income between ₹4,00,001 and ₹8,00,000; 10% tax on income between ₹8,00,001 and ₹12,00,000; 15% tax on income between ₹12,00,001 and ₹16,00,000; 20% tax on income between ₹16,00,001 and ₹20,00,000; 25% tax on income between ₹20,00,000 and ₹24,00,000; and 30% tax on income exceeding ₹24,00,000. The intricacies of tax planning and the significant impact of employer-sponsored retirement schemes are clearly demonstrated in this analysis. The ability to completely eliminate income tax for individuals earning a considerable salary highlights the effectiveness of the government's new tax regime and the importance of understanding and utilizing all available tax benefits. Understanding the nuances of tax laws and planning accordingly is crucial for maximizing financial benefits.
It is important for readers to consult with a qualified financial advisor or tax professional for personalized advice tailored to their specific circumstances. While this article provides a general overview and example, individual situations may differ, and professional guidance can ensure optimal tax planning strategies are implemented. The information provided should not be considered as exhaustive or a replacement for professional financial advice. Moreover, tax laws and regulations are subject to change, and readers should always stay updated on the latest provisions to maintain accurate and compliant tax practices.
Source: No Income Tax On Annual Salary Up To Rs 14.65 Lakh: Know Full Tax Calculation As Per FY26 Slabs