New Tax Regime Calculations for FY25-26: Having a fat paycheque early or in the middle stage of your career can give you a sense of achievement and satisfaction. You may take it as a reward for your hard work or superior skill set compared to your peers. The problem arises when you start thinking about the income tax you will pay on your high salary. Suppose a young person in a start-up job gets an Rs 18 lakh annual salary; it may boost their confidence, but the thought of paying a heavy tax on the same may force them to look for ways to save tax. Here’s what they need to know to make their tax liability 0. If they follow the new tax regime and take the benefit of certain deductions, they need to pay 0 tax on an Rs 18 lakh annual salary. Know how they may do it!
What is new tax regime for FY25-26?
The revised slabs for the new tax regime were announced in Budget 2025 in February. The most striking feature was that the tax-free limit for non-salaried individuals was raised to Rs 12,00,000. For salaried-class individuals, the same limit was raised to Rs 12,75,000.
Tax rebate for new regime taxpayers
As per the new tax regime slabs, the total tax on an income of Rs 12,00,000 is Rs 60,000. However, under Section 87A of the Income Tax Act, 1961, the maximum rebate on this income will be Rs 60,000, which cancels out the tax on this income.
Salaried-class individuals get Rs 75,000 extra benefit
For salaried-class individuals, the Income Tax Department has given a standard deduction of Rs 75,000. It means salaried-class individuals don’t have to pay any tax on an income up to Rs 12,75,000.
Marginal relief for new regime taxpayers
Marginal relief is given to taxpayers whose income is slightly higher than the tax-free limit. In such a case, their tax can’t be more than the incremental income. Suppose a salaried-class individual has an income of Rs 12,85,000; they won’t be taxed on the entire income. Rather, their tax will be Rs 10,000 plus 4 per cent education cess. In total, it will be Rs 10,400.
NPS, EPF tax deductions in new tax regime
NPS and EPF can help a taxpayer get tax benefits in the old as well as the new tax regime. However, in the new tax regime, the benefit is only on the employer contribution. There is no tax benefit on the employee’s NPS and EPF contribution.
In NPS, the maximum tax benefit a taxpayer can get is 14 per cent of their basic pay and dearness allowance (DA).
In EPF, the maximum tax benefit is 12 per cent of the employee’s basic pay and DA.
Tax benefits on entertainment, mobile, conveyance bills
One can get tax benefits in the new tax regime on the bills they have paid for the services used for official purposes. They can claim tax benefits against entertainment, food, mobile, stationery, conveyance bills, etc.
Interest on PPF and SSA schemes
The interest earned on the Public Provident Fund (PPF) and Sukanya Samriddhi Account (SSA) is also tax-free up to no limit.
Tax benefit on post office scheme interest
On interest earned from other post office schemes, a taxpayer can take a tax benefit up to Rs 3,500 under Section 10(15(i).
Tax benefit on 100% contribution to Agnipath Scheme
In the new tax regime, a taxpayer can take a tax benefit on a 100 per cent contribution to the Agnipath Scheme under Section 80CCH(2).
How to make Rs 18,00,000 income tax-free in new tax regime
In the write-up, you can read that there are many ways to save a substantial amount in the form of tax. Here, let’s see the practical approach to it.
Tax saving on Rs 18,00,000 income
Tax saving on Rs 18,00,000 income
Net income- Rs 18,00,000
Less: Standard deduction- Rs 75,000
Deduction U/s 80 CCD (2) on NPS- Rs 1,10,000
Post office scheme interest 10(15(i)- Rs 3,500 Interest on PPF/ Sukanya Yojna- Rs 17,500
Net taxable income– Rs 15,94,000
Income exempt up to Rs 4 lakh- Nil
Income tax on income of Rs 4,00,011-Rs 8,00,000- Rs 20,000
Income tax on income of Rs 8,00,001-Rs 12,00,000- Rs 40,000
Income tax on income of Rs 12,00,001-Rs 16,00,000- Rs 59,100
Total income tax liability- Rs 1,19,100
Cess at 4% on total income tax payable- Rs 4,764
Final income tax liability (inclusive of cess)- Rs 1,23,864
Chart for tax on Rs 18,00,000 income
| FY 2025-26 | New Tax Regime | |||
| Particulars | Tax Rate | Income (Rs) | Tax amount (Rs) | |
| Net Income | 18,00,000 | |||
| Less: Standard Deduction | 75,000 | |||
| Deduction U/s 80 CCD (2) | 1,10,000 | |||
| Post Office Scheme Interest 10(15(i) | 3,500 | |||
| Interest on PPF/ Sukanya Yojna | 17,500 | |||
| Net taxable income | 15,94,000 | |||
| Income exempt up to Rs 4 lakh | Nil | 4,00,000 | ||
| Income tax slab of Rs 4 lakh and up to Rs 8 lakh | 5 | 4,00,000 | 20,000 | |
| Income tax slab of Rs 8 lakh up to Rs 12 lakh | 10 | 4,00,000 | 40,000 | |
| Income tax slab of Rs 12 lakh up to Rs 16 lakh | 15 | 3,94,000 | 59,100 | |
| Total income tax liability | – | 1,19,100 | ||
| Cess at 4% on total income tax payable | – | 4,764 | ||
| Final income tax liability (inclusive of cess) | – | 1,23,864 |
How to reduce Rs 1,23,864 tax to 0
They can utilise these options to reduce tax liability to 0.
1. Contribution to Agni path Scheme Under Section 80CCH(2) is 100 per cent exempted.
2. Travelling Allowance on an actual basis, for travelling purpose, in case of transfer or office shifting.
3. Daily allowance on an actual basis, but it will form part of CTC.
4. Conveyance allowance on an actual basis, but it will form part of CTC.
Other Deductions available in new tax regime
1. In case of Family pension income Rs.25,000/ or 1/3rd whichever is lower is exempt.
2. Rent income from let-out property will be exempt up to 30 per cent
3. Exemption for the 2nd vacant house will be there, without considering deemed rent income.
4. Gratuity Amount Under Section 10 up to Rs 25 lakhs is exempt
5. Leave Encashment allowance Under Section 10(10 AA) up to Rs 25 lakhs is exempt
6. Voluntary retirement amount is exempt Under Section 10 (10C) up to Rs 5 lakh.
7. Income from Life insurance policy Under Section 10 (10D) is exempt.
8. Transport allowance for special-abled persons will be exempt.