Income Tax Calculations: Can your Rs 15,00,000 income be tax-free in proposed new tax regime? Know how
New Tax Regime Calculations: In the new tax regime, an annual income of Rs 12,75,000 is tax-free. But what if someone earns Rs 15,00,000 a year? Can their income be tax-free? What can they do for that? Know about its possibility!
New Tax Regime Calculations: The financial year 2025-26 is about to start in a few weeks from now. The proposed new tax regime is set to come into effect once the new financial year starts. The tax regime promises to bring catalyst changes in tax slabs where income up to Rs 12,00,000 will be tax-free for non-salaried individuals. Salaried-class individuals will have an extra benefit of Rs 75,000 in the form of a standard deduction. But what if someone is earning a few lakhs more than the tax-free limit? Does the proposed new tax regime provide tax benefits in the form of investment and deductions that can make one's salary tax-free? What if you earn Rs 15 lakh a year? Can your income be tax-free? Know why it may be possible by investing in National Pension System (NPS) and taking the benefit of a few reimbursements.
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(Disclaimer: This is not tax advice. Do your own due diligence or consult an expert for financial planning.)
Tax slabs in proposed new tax regime
Key changes that proposed new tax regime will bring
Tax rebate in proposed new tax regime
Under Section 87A, a taxpayer can get a maximum tax rebate of Rs 60,000, which makes their income up to Rs 12,00,000 tax-free.
Standard deduction in proposed new tax regime
A standard deduction of Rs 75,000 under Section 87A is available only to salaried-class individuals. That's the reason their income up to Rs 12,75,000 is tax-free.
Tax liability on Rs 15,00,000 income
Let's see what the tax liability will be for a salaried-class individual with an annual income of Rs 15,00,000. The total tax, including health and education cess, will be Rs 97,500. Now the challenge is to save this tax.
How to save Rs 97,500 in tax?
In the old tax regime, there were many ways to save tax such as deductions mentioned in Section 80C of the Income Tax Act, 1961, the principal amount paid on home loan interest, health insurance policy premium, etc. However, in the proposed new tax regime, such deductions are not available. But a salaried-class individual can get a tax benefit on the employer contribution to their National Pension System (NPS) Tier I account under Section 80CCD(2). The maximum limit of employer contribution that can provide a tax benefit is 14 per cent of the basic salary and dearness allowance (DA) of an employee.
How to save Rs 97,500 in tax?
Apart from that, an individual can also get tax relief on food/entertainment, fuel, uniforms, stationery, and broadband bills where tax has already been paid. However, in that case, they need to include these reimbursements in their salary structure.
NPS tax benefit on Rs 15,00,000 income?
We assume that a person will get a 50 per cent basic salary of their CTC. At a Rs 15,00,000 income, the basic pay will be Rs 7,50,000. At a 14 per cent NPS contribution, the total contribution will be Rs 1,05,000 against which you can claim tax benefits.
Travel allowance
If you use conveyance for official purpose and pay bills from your pockets, you get tax benefits on those bills, but for that, you need to make travel allowance part of your salary. At that salary structure, one may easily get a Rs 5,000 travel allowance, which will be equal to Rs 60,000 a year.
Uniform allowance
One can get reimbursement for clothes they purchase or the uniform they buy for official use. A person may get Rs 2,000 monthly reimbursement for it.
Broadband bill
If you use the internet or mobile for official use, you can also claim reimbursement for it. Assume that your monthly limit is Rs 1500, the total yearly benefits will be Rs 18,000.
Food/entertainment bill
You can also get food or entertainment bills reimbursed and save tax on it.
At a Rs 15,00,000 annual salary package, the reimbursement can be Rs 3,000 a month or Rs 36,000 a year.
How to pay 0 tax on Rs 15,00,000 income
Let's see what the tax liability will be after taking all deductions.
After a standard deduction of Rs 75,000, the taxable income will be Rs 14,25,000.
How to pay 0 tax on Rs 15,00,000 income
The sum of the NPS employer contribution and all the reimbursements mentioned above will be Rs 2,43,000.
After taking the benefit of tax on deductions, the taxable income will be Rs 11,82,000, where after a tax rebate of Rs 38,200, the entire income will become tax-free.