New tax regime: Zero Tax on Rs 18 Lakh Salary



New Tax Regime Calculations for FY25-26: 

Having a fat paycheque early or in the middle stage of your career can give you a sense of achievement and satisfaction. You may take it as a reward for your hard work or superior skill set compared to your peers. The problem arises when you start thinking about the income tax you will pay on your high salary. Suppose a young person in a start-up job gets an Rs 18 lakh annual salary; it may boost their confidence, but the thought of paying a heavy tax on the same may force them to look for ways to save tax. Here's what they need to know to make their tax liability 0. If they follow the new tax regime and take the benefit of certain deductions, they need to pay 0 tax on an Rs 18 lakh annual salary. Know how they may do it!
Under India's revised income tax regime for the financial year 2025–26 (assessment year 2026–27), individuals with a gross annual salary of ₹18 lakh can potentially reduce their tax liability to zero by strategically utilizing available deductions and rebates.

Key Features of the New Tax Regime

  1. Tax Slabs:

    • ₹0 – ₹4 lakh: 0%

    • ₹4 lakh – ₹8 lakh: 5%

    • ₹8 lakh – ₹12 lakh: 10%

    • ₹12 lakh – ₹16 lakh: 15%

    • ₹16 lakh – ₹20 lakh: 20%

    • Above ₹20 lakh: 25%

  2. Standard Deduction:

    • Salaried individuals are entitled to a standard deduction of ₹75,000.

  3. Section 87A Rebate:

    • A rebate of up to ₹60,000 is available for individuals with a net taxable income not exceeding ₹12 lakh, effectively reducing their tax liability to zero. 

Achieving Zero Tax on ₹18 Lakh Salary

To bring the taxable income down to ₹12 lakh or below, thereby qualifying for the Section 87A rebate, consider the following strategies:

  • Standard Deduction: 

                   Automatically reduces taxable income by ₹75,000.

  • Employer Contributions:

    • National Pension System (NPS): Employer contributions up to 10% of basic salary are tax-exempt under Section 80CCD(2).

    • Provident Fund (PF): Employer contributions up to 12% of basic salary are tax-exempt.

  • Salary Restructuring:

    • House Rent Allowance (HRA): If you pay rent, structuring your salary to include HRA can provide tax benefits.

    • Leave Travel Allowance (LTA): While LTA is not exempt under the new regime, in the old regime, it can be claimed for travel expenses. 

  • Other Allowances:

    • Food Coupons: Non-taxable up to ₹50 per meal.

    • Telephone and Internet Reimbursements: Can be structured as reimbursements to reduce taxable income.