No Income Tax on Salary Up to Rs 14.65 Lakh: Full Breakdown
With the latest income tax provisions introduced in the Union Budget 2025-26, individuals earning up to Rs 14.65 lakh per year can potentially pay zero income tax by effectively utilizing employer contributions to NPS and EPF. This tax relief is set to take effect from April 1, 2025.
Understanding the Tax Exemption
The government has announced a rebate on annual income up to Rs 12 lakh, allowing taxpayers to reduce their liabilities. However, with additional deductions from employer contributions, the taxable income can be reduced further, leading to zero tax liability.
How a Rs 14.65 Lakh Salary Becomes Tax-Free
According to a tax computation from Tax2win, individuals with a Cost-to-Company (CTC) of Rs 14.65 lakh can achieve zero tax liability under the new tax regime. Here’s the breakdown:
- Annual Salary (CTC): Rs 14,65,000
- Basic Pay (50% of CTC): Rs 7,32,500
- Standard Deduction: Rs 75,000
- Employer’s EPF Contribution (12% of Basic Pay): Rs 87,900
- Employer’s NPS Contribution (14% of Basic Pay): Rs 1,02,550
- Taxable Income after Adjustments: Rs 11,99,550
Since Rs 11, 99,550 falls below the Rs 12 lakh rebate limit, the tax liability in this case is zero. However, employees must have structured salary components including NPS and EPF to avail of this benefit.
Understanding NPS and EPF Contributions
What is NPS (National Pension System)?
The National Pension System (NPS) is a government-backed retirement savings scheme that offers tax benefits. Under the new tax regime, only the employer’s contribution (up to 14% of basic salary + DA) qualifies for a deduction.
Also Read: EPFO Salary Hike to ₹21,000? What It Means for Employees and Employers!
Key Features:
- Market-linked returns for better long-term gains.
- Exempt-Exempt-Exempt (EEE) status, ensuring tax-free growth.
- Open for private and government employees.
What is EPF (Employees’ Provident Fund)?
The Employees’ Provident Fund (EPF) is another retirement savings scheme where both employees and employers contribute 12% of basic salary. However, under the new tax regime, only the employer’s contribution is tax-deductible.
Comparison: NPS vs. EPF for Tax Benefits
| Feature | National Pension System (NPS) | Employees’ Provident Fund (EPF) |
| Tax-Free Annual Income Limit | ₹13.7 lakh | ₹12 lakh |
| Standard Deduction | ₹75,000 | ₹75,000 |
| Employer Contribution Limit | Up to 14% of basic salary (tax-deductible) | Up to 12% of salary (tax-exempt) |
| Employee Contribution Deduction | Not deductible under the new regime | Not deductible under the new regime |
| Returns | Market-linked | Fixed-rate of 8.25% |
| Flexibility | High (fund switching, asset allocation) | Low (fixed contributions) |
| Withdrawal Taxation | Taxable upon withdrawal | Exempt under certain conditions |
FY26 Income Tax Slabs (New Regime)
The updated income tax slabs for FY26 under the new tax regime are:
- Income up to 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%
- Income above Rs 24,00,000: 30%
Final Thoughts
With the latest FY26 tax provisions, salaried employees can legally reduce their taxable income and benefit from zero tax liability on salaries up to Rs 14.65 lakh. Proper structuring of salary components like NPS and EPF contributions is crucial to maximizing these benefits.
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