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?
Pay 0 Tax On Rs 18.75 Lakh Income: In the new tax regime for the financial year 2025-26, the new tax regime provides tax-free income of up to Rs 12.75 lakh for salaried-class individuals, but can you make your tax liability zero if your annual income is Rs 18.75 lakh? See calculations to know –
Pay 0 Tax On Rs 18.75 Lakh Income: When we earn a huge amount, we wish to pay no tax on it, using all of it for our expenses and savings! But how is it possible? You pay tax as per your tax slabs! But can it be possible that you earn Rs 18.75 lakh a year and save all of it without paying a rupee in tax? It can be possible if one benefits from several deductions available in the new tax regime applicable for the financial year 2025-26! Know how your salaried income of Rs 18.75 lakh can be tax-free in the new tax regime.
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(Disclaimer: This is not tax planning advice. Do your own due diligence or consult an expert for tax planning.)
New tax regime slabs for FY 25-26
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.
New tax regime slabs
| 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% |
How Rs 12 lakh income becomes tax free
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.
Tax-free income for salaried-class individuals
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.
Marginal tax benefit
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.
How Rs 18,75,000 income can be tax-free
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.
Tax relief on NPS, EPF employer contribution
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.
PPF, SSA Account tax benefits in new tax regime
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).
New regime tax benefits on Angnipath Scheme contributions
Under Section 80CCH(2), contributions to Agnipath Scheme are 100 per cent exempt.
How to pay 0 income tax on Rs 18.75 lakh income
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.
Other tax benefits new regime taxpayers can get
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.
Other deductions available in new tax regime
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.
Other deductions available in new tax regime for FY 2025-26 are
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.