How To Make ₹18.50 Lakh Salary Tax-free Under The New Regime

A high salary often comes with an equally high tax burden, but with careful planning under the new tax regime for FY 2025-26, you can legally reduce your tax liability to zero—even on a gross income of ₹18.5 lakh. While the new regime restricts many traditional deductions, it still offers structured benefits and allowances that can be used strategically. According to experts, using legitimate tax provisions, you can bring your taxable income below the threshold and pay nothing in taxes.

Understanding The Tax Calculation On ₹18.5 Lakh Salary

Under the revised slabs for the new tax regime, a ₹18.5 lakh income would initially attract a total tax of approximately ₹1.61 lakh, including cess. But this is before using any of the available deductions.

Let’s begin by subtracting the standard deduction of ₹75,000, which is automatically applicable to salaried taxpayers. This brings your taxable income down to ₹17.75 lakh.

Next, by leveraging specific contributions and exemptions, you can reduce this taxable amount further, step by step.

Maximise NPS And EPF Contributions For Big Deductions

If your basic salary is ₹9.25 lakh (i.e., 50% of the gross income), the employer’s contributions to National Pension System (NPS) and Employees’ Provident Fund (EPF) become powerful tools.

NPS Contribution Benefit
You can claim a tax deduction of up to 14% of your basic pay on employer’s contribution under Section 80CCD(2). For ₹9.25 lakh, this works out to ₹1,29,500.

EPF Contribution Benefit
Similarly, the employer’s contribution of up to 12% of your basic pay to EPF is eligible for deduction. This amounts to ₹1,11,000.

Post these deductions, your taxable income drops to ₹15.34 lakh.

Use PPF And Sukanya Samriddhi For Added Relief

Though many traditional deductions are not available under the new regime, there are still some applicable ones.

Investments in schemes like Public Provident Fund (PPF) and Sukanya Samriddhi Account can help you claim deductions up to ₹17,500. Applying this reduces your taxable income to ₹15.17 lakh.

Additionally, Section 10(15)(i) provides for tax exemption on post office interest up to ₹3,500 annually, bringing down the taxable salary to ₹15.13 lakh.

Reimbursements Can Further Lower Taxable Income

Reimbursements provided by your employer for official purposes can also be structured to reduce taxable salary. These include:

• Entertainment expenses: ₹30,000
  
  
  
• Transport allowance: ₹70,000

Fuel and mobile bills: ₹35,000

Uniform expenses: ₹15,000

Combined, these amount to ₹1.5 lakh. When added to the previous deductions, your taxable income now comes down to ₹13.63 lakh.

Claim Home Loan Interest Benefit On Let-Out Property

If you own a house that is let out, and the interest paid on the loan exceeds the rental income, you can offset this loss.

Suppose your home loan interest is ₹2 lakh and your rental income is ₹1 lakh. The net loss of ₹1 lakh can be deducted. This reduces your taxable income to ₹12.63 lakh.

Family Pension Exemption And Other Allowances

If you receive family pension, up to ₹25,000 or one-third of the total pension—whichever is lower—is exempt. Factoring this in, your taxable income becomes ₹12.38 lakh.

Now, you are only ₹38,000 over the rebate threshold of ₹12 lakh in the new tax regime. This gap can be easily covered using other available exemptions.

Additional Exemptions That Bridge The Final Gap

There are several lesser-known provisions in the new regime that can bring your taxable income to zero:

• Agni Path Scheme Contribution (Section 80CCH(2)): 100% exempt.
  
  
  
• Second House Property: If vacant, no deemed rent is added to income.

Maturity Amount From Life Insurance (Section 10(10D)): Fully exempt under conditions.

Gratuity (Section 10(10)): Up to ₹25 lakh exempt.

Using these additional exemptions, you can comfortably reduce your taxable income below ₹12 lakh, making you eligible for the full rebate under Section 87A, which completely eliminates any tax liability.

It may seem unlikely at first glance, but careful use of legitimate deductions and exemptions under the new tax regime makes it entirely possible to pay zero income tax on ₹18.5 lakh gross income. The key lies in planning your salary structure wisely, making eligible contributions, and keeping supporting documentation for exemptions claimed. According to financial experts, salaried individuals should consult their HR departments and financial advisors to align their earnings with tax-saving strategies effectively.

Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Please consult a qualified tax advisor or chartered accountant before making any investment or tax-planning decisions.