New Tax Regime: Whenever we used to think of tax savings, we only remembered the Old Tax Regime, in which tax exemption was taken by claiming HRA, LTA, 80C. But now the government has made the New Tax Regime more friendly.
Especially from FY 2025–26, this regime will suit most taxpayers more. With the changed slab rates, standard deduction and now the salary structuring facility being provided by the companies, it is possible to pay ZERO tax even on a salary of up to ₹ 19,20,000. How? Let us now understand in detail.
How will ZERO TAX be implemented?
From FY 2025–26, the slabs of the New Tax Regime have been changed and along with that companies are now making the salary structure tax friendly. The result is that even if your annual salary is up to ₹19.20 lakh, you can pay ZERO TAX by making sensible deductions and structuring.
New Tax Regime- FY 2025–26 Slabs
| Taxable Income (in ₹) | Tax Rate (%) |
|---|---|
| 0 – 4,00,000 | NIL |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| > 24,00,000 | 30% |
Keep in mind that under Section 87A, a tax exemption of ₹25,000 is available on taxable income up to ₹12 lakh, i.e. tax = ₹0
Real salary breakup of ₹19.20 lakh CTC
Suppose your company structures salaries like this.
| Component | Amount (₹) | Calculation Basis |
|---|---|---|
| Basic Pay | ₹9,60,000 | 50% |
| Personal Allowance | ₹4,72,320 | Fixed component (excluding flexi parts) |
| Employer PF (Flat)** | ₹21,600 | ₹1,800 × 12 (fixed min opted) |
| Gratuity | ₹46,080 | 4.8% of basic = ₹9.6L × 4.8% |
| Variable Pay (5%) | ₹96,000 | 5% of ₹19,20,000 |
| Flexi/MPMC Components | ₹6,23,600 | Books, car, entertainment etc. |
| Total CTC | ₹19,20,000 |
Step-by-step calculation of taxable income
1. Standard Deduction – ₹75,000
₹19,20,000 – ₹75,000 = ₹18,45,000
2. Employer NPS Contribution – ₹84,000
(14% of Basic as per rules)
₹18,45,000 – ₹84,000 = ₹17,61,000
3. Flexi Pay tax-free components – ₹6,23,600
| Flexi Pay Category | Amount (₹) |
|---|---|
| Car/Conveyance | ₹2,85,600 |
| Books & Periodicals | ₹1,08,000 |
| Entertainment | ₹2,40,000 |
| Uniform | ₹90,000 |
| Total | ₹6,23,600 |
₹17,61,000 – ₹6,23,600 = ₹11,37,400
4. Home Loan Interest + Rental Income Set-off – ₹2,60,000
If the house is a let-out:
-
Interest Deduction: ₹2,00,000
-
Rental Income Adjustment: ₹60,000
₹11,37,400 – ₹2,60,000 = ₹8,77,400
5. Other Deductions – ₹50,000
Let’s say:
-
Gift exemption, family pension, or other miscellaneous
₹8,77,400 – ₹50,000 = ₹8,27,400 (Final Taxable Income)
Now understand the calculation of tax
| Slab | Income Range | Rate | Tax (₹) |
|---|---|---|---|
| NIL | ₹0 – ₹4,00,000 | 0% | ₹0 |
| 5% | ₹4L – ₹8L | 5% | ₹20,000 |
| 10% | ₹8L – ₹8.27L | 10% | ₹2,740 |
| Total Tax Payable | ₹22,740 | ||
| Section 87A Rebate | ≤ ₹12L income | , | ₹22,740 |
| Net Tax | ₹0 |
What needs to be done for Zero Tax?
-
Correct structuring of Flexi Pay
-
Minimum PF (₹1,800/month)
-
Employer NPS Contribution
-
Home Loan Interest Benefit (with let-out)
-
Other Income Adjustment + ₹50K exemption
The combination of all these makes your salary of ₹19.20 lakh tax free. You can request your HR to prepare your salary structure with a Flexi Pay plan. You can also increase your in-hand salary by opting for a minimum Provident Fund.
