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.