New Tax Regime Finance Minister Nirmala Sitharaman has made annual income of Rs 12 lakh tax free in Budget 2025. But if you plan properly, you can save tax even on income more than Rs 12 lakh. According to tax experts, tax can be made zero even on annual income up to Rs 14.65 lakh. Let us understand its complete calculation.
Save Income Tax: Finance Minister Nirmala Sitharaman gave a big relief to the general public in the budget. She made annual income up to Rs 12 lakh tax free. This will especially benefit the middle class. Also, with good planning, you can save tax on income of more than 12. Tax experts believe that CTC (Cost to Company) of Rs 14.65 lakh can be easily made tax free.
How will income of Rs 14.65 lakh be tax free
Now suppose your annual salary is Rs 14.65 lakh. Out of this, half the money i.e. 50 percent goes into basic salary. At the same time, the remaining 50 percent is received in the form of other items and allowances. We will further calculate the tax deduction according to the amount of basic salary.
Complete calculation of tax exemption
If the company contributes 12% of the basic salary to the Employees Provident Fund, then tax deduction can be claimed on it. It will be Rs 87,900. At the same time, tax exemption is also available on the company’s contribution to the National Pension System (NPS). This contribution will be 14% of the basic salary i.e. Rs 1,02,550. Also, you get a standard deduction of Rs 75,000 in the new tax regime. That is, this amount will be directly reduced from your taxable income.
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After taking advantage of all these exemptions, your net taxable income will be Rs 11,99,550 lakh. The government has made income up to Rs 12 lakh tax free, so this means that you will not have to pay a single rupee tax. But, you have to keep in mind that this system will come into effect from the next financial year i.e. 2025-26.
How will income of Rs 14.65 lakh be tax free?
Salary and allowances Amount
Basic Salary (50% of gross salary) Rs 7,32,500
Other allowances (remaining 50% of gross salary) Rs 7,32,500
Gross Salary
Standard Deduction (Fixed) Rs 75,000
Company’s contribution to EPF (12% of basic salary) Rs 87,900
Company’s contribution to NPF (14% of basic salary) Rs 1,02,550
Net Taxable Income Rs 11,99,550
Note: This tax calculation is done under the New Tax Regime for FY 2025-26.
How much tax will be saved in total
If the government does not make income up to Rs 12 lakh tax free and does not give the benefit of tax deduction on EPS and NPS, then an annual income of Rs 14.65 lakh would have to pay heavy tax. According to the new tax regime, 5 percent tax (Rs 20 thousand) will be levied on income from Rs 4 to 8 lakh.
At the same time, 10 percent tax (Rs 40 thousand) will be levied on income from Rs 8 to 12 lakh and 15 percent tax will be levied on income from Rs 12 to 14.65 lakh. If you remove the standard deduction of Rs 75 thousand in this, then 15 percent tax i.e. Rs 28,500 will be levied on Rs 1.90 lakh. In this way, the total tax liability will be Rs 88,500, which you can easily save.
The role of EPS and NPS is important
Under section 80CCD(1) of Income Tax, tax exemption is available on Employee Pension Scheme (EPS) and under 80CCD(2) on contribution to NPS. However, in the new tax regime, this exemption is available only on the company’s contribution, because it is considered as your direct income. Therefore, you are allowed to claim tax exemption on it.
NPS i.e. National Payment System is a retirement plan. Those who join this government scheme get pension after retirement. In this, the contribution is invested in the market and the return received from it is given as pension. NPS was started in 2004. It was opened for the general public in 2009.
