Budget 2026: Under the new tax regime, income up to ₹12.75 lakh is tax-free. After that, any increase in salary may result in tax. Now, even those earning ₹14 lakh can save substantially without paying a single penny. However, this requires following certain rules. Let’s find out what you need to do.
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Income Tax Free: Every employed person has a CTC on their salary slip. If it exceeds ₹12 lakh, it’s natural to be worried. In such a situation, let’s assume that paying taxes is inevitable. Sometimes, the thought of a large portion of a hefty salary going towards taxes suffices. But the truth is a little different. If your annual income is up to ₹14 lakh, you can make your entire salary tax-free under the new tax regime.
The government’s new tax rules, standard deductions, and certain legal exemptions have made this path easier. This isn’t a trick or a means of circumventing the rules, but rather the very features built into the tax system itself. All you need to do is understand and utilize them correctly.
Save tax by investing in EPF and NPS
CA Shefali Mudra, tax expert at ClearTax, says that in the new tax regime, the entire tax liability can be reduced to zero by properly utilizing employer contributions to EPF and NPS. This requires the salary structure to be consistent. Under current rules, employer contributions to EPF (12% of the basic contribution) and employer contributions to NPS (14% of the basic contribution for private sector employees, deductible under Section 80CCD(2)) are tax-free.
Basic salary is essential for this trick to work, as both EPF and NPS contributions are a percentage of basic salary. If a portion of basic salary is properly allocated to CTC and a portion of it is routed to EPF and NPS, then combined with standard deductions, taxable income can come down to Rs 12 lakh or less, thereby availing the full Section 87A exemption and reducing the tax bill to zero.
How does Section 87A reduce tax to zero?
According to a report in Business Standard, Shefali says that since the taxable income is well below ₹12 lakh, the Section 87A exemption completely offsets any tax that is calculated. Consequently, the tax bill becomes zero.
A corpus worth crores with tax savings
This planning not only saves you tax today but also creates a substantial corpus for old age.
The Magic of NPS
If a 25-year-old deposits ₹10,000 per month (with a 5% annual increase) and earns a 12% return, he can build a corpus worth ₹8.62 crore by the age of 60.
The Power of EPF
Similarly, an EPF investment of ₹10,000 per month can accumulate approximately ₹4.05 crore with an interest rate of 8.25%. To avail this benefit, your company must be registered with both the EPFO and NPS. If your company only offers EPF, you can still keep your salary up to ₹13.56 lakh tax-free.
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