Mutual Fund Returns Vs Inflation: How ₹10 Lakh Can Grow Into A Large Corpus By Age 60

Earning a high salary is often a sign of financial progress, but ensuring that this income isn’t eroded by tax can be a challenge. Under the new tax regime for FY 2025-26, a person earning ₹18.5 lakh annually can reduce their tax liability to zero with proper planning and eligible exemptions. While this is difficult, it is possible if you make the right financial choices, claim all permissible deductions, and structure your salary efficiently.

Understanding the New Tax Regime Slabs

For the financial year 2025–26, the new tax regime slabs are as follows:

• Up to ₹4,00,000 – Nil

Base Tax Liability on ₹18.5 Lakh Salary

Starting with a gross annual salary of ₹18.5 lakh, a standard deduction of ₹75,000 reduces the taxable income to ₹17,75,000. Calculating the tax using the slabs:

• 5% on ₹4,00,000 = ₹20,000

But this can be brought to zero through the steps below.

NPS Contribution From Employer

Under the new regime, an employer’s contribution to the National Pension System (NPS) is exempt up to 14% of the basic salary. If your basic salary is 50% of the total income (₹9.25 lakh), 14% comes to ₹1,29,500. This amount is deductible, reducing your taxable income to ₹16,45,500.

Employer Contribution to EPF

You can also deduct up to 12% of the basic pay on the employer’s contribution to the Employees’ Provident Fund (EPF). This amounts to ₹1,11,000, bringing taxable income further down to ₹15,34,500.

Investments in PPF and Sukanya Samriddhi Yojana

While these schemes are not fully eligible for deductions under the new regime like in the old one, interest income in some cases may still be exempt. If you invest ₹1.5 lakh and claim ₹17,500 as interest-related tax benefit, the income now reduces to ₹15,17,000.

Post Office Interest Exemption

Interest earned from certain post office savings accounts qualifies for exemption up to ₹3,500 under Section 10(15)(i). This brings the taxable income to ₹15,13,500.

• Entertainment bills – ₹30,000
  
  

Home Loan on Let-Out Property

If you own a let-out property and the interest on its loan exceeds rental income, the net loss can be offset. Suppose you pay ₹2 lakh interest and earn ₹1 lakh rent, a loss of ₹1 lakh can be claimed, reducing income to ₹12,63,500.

Family Pension Exemption

If applicable, up to ₹25,000 or one-third of the pension (whichever is less) is exempt from tax. Assuming ₹25,000 is claimed, the taxable income comes down to ₹12,38,500.

Final Adjustments Using Other Exemptions

The difference from ₹12,00,000 is now ₹38,500. This can be reduced using:

• Agniveer Corpus Fund contribution under Section 80CCH(2)
  
  

Using a mix of these, the remaining taxable amount of ₹38,500 can be reduced to nil, ensuring that no tax is payable on ₹18.5 lakh salary.

Though the new tax regime appears to offer limited deductions at first glance, strategic planning can help salaried individuals optimise their tax liability effectively. With employer-backed benefits like NPS and EPF, intelligent salary structuring, rental loss offsets, and specific exemptions, it’s entirely possible to bring your tax liability down to zero on a ₹18.5 lakh income.