ITR Filing: How Taxpayers Can Legally Pay Zero Tax On ₹16.5 Lakh Income Under The New Regime For FY 2025-26

For salaried individuals in India, tax planning plays a crucial role in managing finances efficiently. With the introduction of the new tax regime, many taxpayers are keen to understand whether they can still enjoy meaningful savings while benefiting from lower rates. According to experts, a person with an annual income of ₹16.5 lakh can effectively reduce their taxable income to nil by using available deductions and allowances. Here’s a detailed look at how this can be achieved in FY 2025-26.

Income Tax Slabs Under The New Regime

The new tax regime for FY 2025-26 follows a structured slab system. Income up to ₹4 lakh is tax-free, while higher slabs attract rates ranging from 5% to 30%. For example, those earning between ₹12 lakh and ₹16 lakh fall under the 15% slab. This progressive system ensures that benefits extend to different income groups, while targeted deductions allow higher earners to reduce their tax liability.

Standard Deduction For Salaried Employees

All salaried individuals are entitled to a standard deduction of ₹75,000 under the new regime. For a gross income of ₹16.5 lakh, this deduction immediately brings taxable income down to ₹15.75 lakh. Though small compared to total earnings, this benefit forms the foundation of further tax planning.

National Pension System (NPS) Contribution

As per the rules, an employer’s contribution to the National Pension System (NPS) is eligible for tax benefits up to 14% of the employee’s basic pay. Assuming half of the gross salary (₹8.25 lakh) is treated as basic, the maximum deduction available is around ₹1.15 lakh. After this, taxable income reduces to approximately ₹14.6 lakh, giving employees both immediate tax relief and long-term retirement benefits.

Employee Provident Fund (EPF) Deduction

Another major relief comes from contributions towards the Employees’ Provident Fund (EPF). Employer contributions amounting to 12% of the basic pay can be deducted. On a basic salary of ₹8.25 lakh, this equates to nearly ₹99,000. The deduction further reduces taxable income to roughly ₹13.6 lakh.

Additional Tax-Saving Investments

According to experts, investing in small savings schemes like the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana can provide additional relief even under the new regime. For instance, an investment of ₹2.5 lakh split between PPF and Sukanya accounts allows a further tax advantage of around ₹17,500. This adjustment lowers taxable income to approximately ₹13.43 lakh.

Professional Allowances And Reimbursements

Companies often provide reimbursements for expenses like entertainment, transport, mobile usage and fuel. These reimbursements, if structured as part of the salary package, qualify for tax exemptions. A typical example includes: entertainment bills of ₹40,000, transport allowance of ₹60,000, fuel reimbursements of ₹25,000, mobile usage of ₹10,000 and uniform expenses of ₹15,000. Together, this amounts to ₹1.5 lakh, which is exempt from tax, further reducing taxable income to nearly ₹11.93 lakh.

Final Tax Calculation

At this stage, the adjusted taxable income stands below ₹12 lakh. Under the new regime, this level falls within the tax-free bracket after applying rebates available under Section 87A. The result is a nil tax liability, meaning the individual effectively pays zero income tax despite a gross annual salary of ₹16.5 lakh.

Why Tax Planning Matters

Tax professionals emphasise that while the new regime simplifies slabs and offers lower rates, strategic use of deductions is critical to maximise savings. By aligning salary components, leveraging retirement contributions and taking advantage of reimbursements, taxpayers can legally and transparently bring their liability to zero. Early financial planning ensures smoother compliance and helps individuals retain more of their hard-earned income.

Disclaimer: This article is intended for informational purposes only and should not be considered financial advice. Taxpayers are encouraged to consult a qualified chartered accountant or tax advisor before making any financial or investment decisions. According to experts, effective tax planning depends on individual income structures, employment benefits and long-term financial goals.