Salaried Individuals Can Pay Zero Tax on ₹18.5 Lakh Income; Here’s How
There are various government schemes offering tax benefits, through which you can reduce your tax liability to zero even while earning a gross salary of ₹18,50,000.
Paying a large amount as tax and managing monthly expenses can be a burden for salaried individuals. Every Indian citizen aspires to earn a higher salary bracket without facing heavy tax deductions. The dream of the salaried class is to eliminate their tax burden while still receiving a handsome paycheque.
Under the new tax regime applicable for the financial year 2025–26, your income up to ₹12,75,000 can be made tax-free by availing the standard deduction and tax rebate. But if your annual income has reached ₹18.5 lakh, can you still achieve zero tax liability legally? While challenging, it is indeed possible to make your ₹18,50,000 income entirely tax-free.
As per the slab rates in the new regime, a standard deduction of ₹75,000 is applicable on a gross salary of ₹18.5 lakh. After subtracting this standard deduction under Section 87A of the Income Tax Act, 1961, your taxable income will become ₹18,50,000 – ₹75,000 = ₹17,75,000. From here, you can avail multiple tax-saving options introduced by the Government of India to reduce your taxable income to nil.
NPS Tax Benefit
An employer’s contribution to the National Pension System (NPS) account is eligible for tax exemption under the new regime for FY 2025–26. The maximum exemption can go up to 14% of the basic salary. Assuming a basic salary of ₹9,25,000 on ₹18.5 lakh gross income, the maximum NPS exemption would be ₹1,29,500. This brings down your taxable income to ₹17,75,000 – ₹1,29,500 = ₹16,45,500.
EPF Tax Benefit
Though employees do not get tax exemption on their own EPF contribution, they are eligible for exemption on 12% of their employer’s contribution. On a ₹9.25 lakh basic pay, the employer’s EPF contribution can give you a deduction of ₹1,11,000. This further reduces your taxable income to ₹16,45,500 – ₹1,11,000 = ₹15,34,500.
PPF, Sukanya Samriddhi Scheme
By investing in PPF and Sukanya Samriddhi Yojana, taxpayers can avail further deductions. An investment of ₹1.5 lakh in PPF and ₹1 lakh in Sukanya Samriddhi can fetch tax benefits of ₹17,500. After availing these, your taxable income drops to ₹15,17,000.
Post Office Interest Scheme
As per Section 10(15)(i), interest income from certain post office schemes is eligible for tax exemption. You can save up to ₹3,500 on such interest income under the new tax regime.
Home Loan Tax Benefit
Under the new regime, those paying high interest on a home loan are eligible for additional deductions. If the interest you pay is higher than the rent earned, the difference is allowed as a deduction. For example, if you pay ₹2,00,000 interest in a year and receive ₹1,00,000 as rent, you can claim a deduction of ₹1,00,000.
Family Pension Exemption
Tax exemption on family pension income is allowed up to ₹25,000 or one-third of the total pension amount in a financial year—whichever is lower.
Other Allowances
You can also claim tax benefits for official expenses such as entertainment, mobile, fuel, and conveyance. If your bills for these expenses amount to ₹1.5 lakh, you can claim deductions accordingly. Assuming expenses as follows: entertainment (₹30,000), transport (₹70,000), fuel (₹20,000), mobile (₹15,000), and uniform (₹15,000), you are left with only ₹38,000 taxable income above the ₹12 lakh tax-free threshold.
To bring this down to zero, you can show a full tax-exempt contribution to the Agnipath Scheme under Section 80CCH(2). Additionally, income received through a life insurance policy under Section 10(10D) and gratuity up to ₹25 lakh under Section 10(10) are also fully exempt from taxation.
