Pay No Tax on Rs 18,75,000 Salary in FY26: Can your Rs 18.75 lakh salaried income be tax-free in new tax regime?

In the new tax regime, there is nil tax on Rs 4 lakh. From Rs 4,00,001 to Rs 8,00,000, it is 5 per cent; from Rs 8,00,001 to Rs 12,00,000, it is 10 per cent; from Rs 12,00,001 to Rs 16,00,000, it is 15 per cent; from Rs 16,00,001 to Rs 20,00,000, it is 20 per cent; from Rs 20,00,001 to Rs 24,00,000, it is 25 per cent; and from Rs 24,00,001 lakh onwards, it is 30 per cent.

Current New Tax Regime Income Tax Slabs Tax Rate Upto Rs. 4,00,000 NIL Rs. 4,00,001 - Rs. 8,00,000 5% Rs. 8,00,001 - Rs. 12,00,000 10% Rs. 12,00,001 - Rs. 16,00,000  15% Rs. 16,00,001 - Rs. 20,00,000 20% Rs. 20,00,001 - Rs. 24,00,000 25% Above Rs. 24,00,000  30%

The taxpayer gets a tax rebate of up to Rs 60,000 under Section 87A on Rs 12,00,000 income. As per the new tax regime, the tax for income in that bracket is Rs 60,000. So, after the rebate, income becomes tax-free.  

Salaried-class individuals get a standard deduction of Rs 75,000 under Section 87A, so their income up to Rs 12,75,000 becomes tax-free. 

If your income is slightly higher than the tax-free limit, you don't need to pay income tax more than your incremental income. E.g., if you are a salaried-class individual and your income is Rs 12,85,000, you don't need to pay tax on the entire income. Your tax in such a case will be Rs 10,000 plus 4 per cent education and health cess.

It can become tax-free if the income earner takes tax benefits on investments in certain schemes and also takes the benefit of certain deductions. These deductions can be contributions to National Pension System (NPS) and Employees' Provident Fund (EPF); interest earned on Public Provident Fund (PPF) and Sukanya Samriddhi Account (SSA); the family pension amount; transport allowance; entertainment allowance; home loan interest on a let-out property, etc. 

A taxpayer can get tax relief on the employer contribution to their NPS and EPF accounts. There is no tax benefit on the employee contribution.  For NPS, the maximum tax benefit is 14 per cent of the basic pay and dearness allowance (DA). For EPF, the maximum tax benefit is 12 per cent of the basic pay and DA. E.g., if your basic salary and DA are Rs 6,00,000, you can get up to Rs 84,000 in tax benefits on the employer's NPS contribution and up to Rs 72,000 on the employer's EPF contribution.

The new tax regime offers unlimited benefits on the interest earned on PPF and Sukanya Yojana. Other than that, the interest earned up to Rs 3,500 in other post office schemes is also exempt under Section 10(15(i).

Under Section 80CCH(2), contributions to Agnipath Scheme are 100 per cent exempt.

We will give a chart of new tax regime benefits for an Rs 18.75 lakh salary. In the end, we will also tell how one may reduce tax liability to zero.

Particulars Tax Rate Income (Rs) Tax amount (Rs) Net Income   18,75,000   Basic pay (50% of net income)   9,37,500   Less: Standard Deduction   75,000   Deduction for EPF (12% of basic pay)   1,12,500   NPS deduction U/s 80 CCD (2)   1,31,250   Post Office Scheme Interest 10(15(i)   3,500   Interest on PPF/ Sukanya Yojna(1.5 lakhs +1 Lakhs)   17,500   Net taxable income   15,27,750   Income exempt up to Rs 4 lakh Nil 4,00,000   Income tax slab of Rs 4 lakh and up to Rs 8 lakh 5 4,00,000 20,000 Income tax slab of Rs 8 lakh up to Rs 12 lakh 10 4,00,000 40,000 Income tax slab of Rs 12 lakh up to Rs 16 lakh 15 3,27,750 49,163 Total income tax liability   -  1,09,163 Cess at 4% on total income tax payable    -  4,367 Final income tax liability (inclusive of cess)   -  1,13,530

In the chart, you can see that after taking the benefit of deductions, the taxpayer still has a tax liability of Rs 1,13,530. Here's how it can be reduced to zero.

On 100 per cent contributions to Centre's Agnipath Scheme under Section 80CCH(2).  On travelling allowance on an actual basis, for travelling purposes, in case of transfer or office shifting. On conveyance allowance on an actual basis, but it will form part of CTC. On a daily allowance on an actual basis, but it will form part of CTC.

In case of family pension income, Rs 25,000 or 1/3rd, whichever is lower, is exempt. Rent income from let-out property will be exempt up to 30 per cent. Exemption for the second vacant house will be there, without considering deemed rent income. Gratuity amount under Section 10 (10) up to Rs 25 lakhs is exempt.

Leave encashment allowance Under Section 10(10AA), up to Rs 25 lakh is exempt. Income from life insurance policy Under Section 10 (10D) is exempt. The voluntary retirement amount is exempt under Section 10 (10C) up to Rs 5 lakh. No taxable perquites received from the office, like an office laptop, medical policy and interest-free loan are exempt forming part of salary. Transport allowance for special-abled persons will also be exempt.