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Zero Income Tax on ₹13.7 Lakh Salary: A Detailed Guide for Salaried Individuals

Maximize Your Savings: Pay Zero Tax on ₹13.7 Lakh Salary

For salaried individuals in India, it’s now possible to earn up to ₹13.7 lakh annually without paying any income tax. This significant tax relief, introduced in the Union Budget 2025, offers a golden opportunity for middle-class taxpayers to keep more of their hard-earned money.

If you are a salaried individual, you can enjoy a significant tax advantage, allowing your annual income to remain untaxed up to ₹13.7 lakh. This is higher than the ₹12 lakh tax-free threshold available to other categories of taxpayers. This additional benefit stems from the ₹75,000 standard deduction and contributions to the National Pension System (NPS), making it possible to legally reduce your tax liability to zero.

Key Considerations:

  • Employer Dependency: This benefit is only accessible if NPS is included in the employer’s Cost to Company (CTC). Employees cannot opt for it independently.
  • Low Adoption: Despite being available for nearly a decade, only 2.2 million people have enrolled. Sudhir Kaushik, CEO of Taxspanner.com, notes limited employer interest and employee awareness as key reasons.

Also Read-Salaried Employees Need to Submit Investment, Expenditure Proofs to Employer to Avoid Full TDS on Salary

Tax-Free Income Advantage for Salaried Individuals.

Finance Minister Nirmala Sitharaman announced in her Budget 2025 speech that there would be no income tax payable on incomes up to ₹12 lakh under the new tax regime. However, for salaried taxpayers, this limit extends to ₹12.75 lakh, thanks to the standard deduction of ₹75,000.

The Union Budget 2025 introduced several reforms benefiting salaried taxpayers. Among these changes is the enhanced standard deduction of ₹75,000, which significantly reduces taxable income. Additionally, under Section 80CCD(2) of the Income Tax Act, salaried employees can claim deductions of up to 14% of their basic salary for NPS contributions (compared to 10% under the old tax regime).For example:

  • An individual earning ₹13.7 lakh annually with a basic salary of ₹6.85 lakh can contribute 14% of their basic salary (₹95,900) towards NPS.
  • Combined with the standard deduction of ₹75,000, their taxable income is effectively reduced to zero.

Under Section 80CCD(2) of the Income Tax Act, employees can claim a deduction of up to 14% of their basic salary for NPS contributions, reducing their taxable income. In contrast, the old tax regime limits this deduction to 10% of the basic salary. For someone earning ₹13.7 lakh annually, contributing to the NPS could lower their tax liability by approximately ₹96,000. However, this benefit is only available if the employer includes NPS as part of the cost-to-company package; employees cannot opt for it independently.

For instance, an employee with an annual income of ₹13.7 lakh and a basic salary of ₹6.85 lakh can contribute 14% (₹95,900) to NPS. When combined with the ₹75,000 standard deduction, their entire income becomes tax-free. Despite this advantage, many taxpayers fail to utilize this opportunity. Although the NPS benefit has been available for nearly a decade, only about 2.2 million individuals have enrolled in it. “Few companies offer the NPS benefit, and even fewer employees take advantage of it,” noted Sudhir Kaushik, CEO of Taxspanner.com.

One reason for limited adoption is the restrictive nature of NPS withdrawals. The scheme has long lock-in periods and stringent withdrawal rules. Funds cannot generally be accessed before retirement except in exceptional circumstances. At maturity, only 60% of the accumulated corpus can be withdrawn as a lump sum, while the remaining 40% must be invested in an annuity to ensure lifelong pension payments.

Experts argue that these restrictions may actually benefit investors in the long run. “The illiquidity of NPS isn’t necessarily a drawback; it ensures disciplined investment over time. If held for a prolonged period, the returns can be substantial,” explained Sriram Iyer, CEO of HDFC Pension.

Beyond its tax advantages, NPS offers several additional benefits. Investors can customize their asset allocation, switch between funds, and even change pension fund managers without incurring tax liabilities. Furthermore, NPS has one of the lowest fund management fees in the industry at just 0.09% annually—significantly lower than the 1-1.5% charged by most mutual funds—enabling NPS funds to consistently outperform comparable mutual funds over time.

How to Achieve Zero Tax on ₹13.7 Lakh Salary.

The key to unlocking this tax-free benefit lies in a combination of the standard deduction and strategic use of the National Pension System (NPS). Here’s how it works:

  1. Standard Deduction: All salaried individuals are entitled to a standard deduction of ₹75,000.
  2. NPS Contributions: Section 80CCD(2) allows for tax deductions of up to 14% of the basic salary when invested in NPS.

Tax Calculation Example: ₹13.7 Lakh Salary.

The following table illustrates how a salaried individual earning ₹13.7 lakh annually can achieve zero tax liability:

Income ComponentAmount (₹)
Gross Annual Salary13,70,000
Standard Deduction-75,000
NPS Contribution (14% of Basic Salary)-95,900
Taxable Income1199100 (Not Taxable)

This calculation assumes that the employer includes NPS as part of the employee’s cost-to-company (CTC). Without employer participation in NPS, this benefit cannot be availed.

The NPS Advantage.

For an employee earning ₹13.7 lakh annually with a basic salary of ₹6.85 lakh:

  • 14% NPS contribution: ₹95,900
  • Standard deduction: ₹75,000
  • Total deductions: ₹1,70,900

This strategic approach can potentially save you approximately ₹96,000 in taxes annually.

Important Considerations

  1. Employer Participation: The NPS benefit requires employer participation. It must be offered as part of the cost to company (CTC) structure.
  2. New Tax Regime: These benefits are available under the new tax regime introduced in Budget 2025.
  3. Basic Salary Ratio: The calculations assume a basic salary of 50% of the total income. Your actual savings may vary based on your salary structure.

Comparative Tax Savings.

Income LevelTax Savings
₹12 lakh₹80,000
₹13.7 lakh₹96,000
₹25 lakh₹1.1 lakh

Note: Actual savings may vary based on individual circumstances.

Additional Tax Benefits of NPS.

  1. Self-Contribution: Deduction up to 10% of salary under section 80CCD(1), within the ₹1.50 lakh limit of section 80CCE.
  2. Extra Deduction: Additional ₹50,000 deduction under section 80CCD(1B).
  3. Partial Withdrawals: Tax-exempt withdrawals up to 25% of self-contribution for specified emergencies.
  4. Maturity Benefits: The entire corpus is tax-free upon retirement or exit at maturity.

Conclusion.

The new tax regime, coupled with strategic NPS investments, offers an unprecedented opportunity for salaried individuals to optimize their tax liability. By leveraging these provisions, you can potentially enjoy a tax-free income of up to ₹13.7 lakh, significantly boosting your savings and financial security.

Remember, while this strategy can lead to substantial tax savings, it’s crucial to consult with a qualified tax professional to ensure it aligns with your overall financial goals and circumstances.

Disclaimer:

This article is for informational purposes only and does not constitute professional tax advice. The information provided is based on current tax laws and regulations, which are subject to change. Individual tax situations may vary, and readers are advised to consult with a qualified tax professional before making any financial decisions. The author and publisher of this article are not responsible for any actions taken based on the information provided herein.


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Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.

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