If you still think that the tax-free income limit in Budget 2025 is only up to ₹12 lakh, then you are only seeing half the picture. The real situation is a little more complicated. Although the government has made income up to ₹12 lakh tax-free under the new tax regime, there is a way for salaried people to save tax even on salaries up to ₹13.70 lakh. This is not magic, but an intelligent use of two rules present within the system.
standard deduction
Most of the deductions have been abolished in the new tax system. However, salaried individuals still get a standard deduction of ₹75,000. This means that if your salary is up to ₹12.75 lakh, your taxable income will be ₹12 lakh, and you will not have to pay any tax.
The power of employer NPS contribution
NPS is often ignored in tax planning, even though it plays an important role in the new tax regime. Under Section 80CCD(2) of the Income Tax Act, the amount deposited by the company in the employee’s NPS account is exempt from tax. This limit has been fixed at 14% of the basic salary for both government and private sector employees. This money is part of the employee’s salary, but it does not go directly into their hands. The company deposits it in the NPS account, and hence there is no income tax on this amount. As a result, taxable income reduces, and tax savings automatically increase.
How to make income above ₹13.70 lakh tax-free?
In the new tax regime, salaried people get a standard deduction of ₹75,000, which directly reduces their total salary. Additionally, if the company employer gives NPS contribution, up to 14% of the basic salary can be invested in NPS, which is not included in the tax calculation. Thus, including standard deduction and employer’s NPS contribution, an amount of approximately ₹1.70 lakh is excluded from taxable income. After deducting both these exemptions, the salary of ₹13.70 lakh comes down to ₹12 lakh. Because in the new tax system, exemption is available on income up to ₹ 12 lakh, hence in this situation the tax liability is completely eliminated.
What do you have to do to get this benefit?
Most of the big companies offer the facility of Employer NPS. For this you can contact the HR department of your company. It is important to note that NPS contributions are deducted from your basic salary. This will reduce your monthly take-home salary slightly, but the tax savings at the end of the year will be huge.
