The government has provided tax relief for taxpayers in the financial year 2025-26, allowing individuals earning up to ₹12 lakh per year to pay zero tax under the new tax regime. However, many wonder if those earning beyond ₹12 lakh, such as ₹15 lakh or ₹17 lakh, can also save on income tax. The answer lies in smart salary structuring. Let’s explore how you can legally pay zero tax even with a higher salary package.
Many employees assume that tax is levied on their total Cost to Company (CTC), but this is incorrect. Tax is only calculated on the taxable portion of your income, which remains after considering all exemptions and deductions. Even with a CTC above ₹12 lakh, strategic allocation of salary components can effectively reduce taxable income to a level where no tax is payable.
For instance, under the new tax regime, the standard deduction is ₹75,000, effectively raising the tax-free income limit to ₹12.75 lakh. Those with a CTC of ₹15 lakh can still bring their taxable income below ₹12 lakh with proper planning.
Tax experts suggest that by structuring salary efficiently, you can lower your taxable income significantly. Here are some key components that can help achieve zero tax liability:
Dearness Allowance (DA)
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
Conveyance Reimbursement
Employer’s Contribution to Provident Fund (EPF)
Employer’s Contribution to National Pension System (NPS)
Under Section 80CCD(2), an employer’s NPS contribution (up to 14% of basic salary) qualifies for tax deduction. Additionally, under Section 87A, individuals with taxable income up to ₹12 lakh receive a tax rebate of ₹60,000, effectively eliminating tax liability.
| Salary Components | Annual Amount (₹) |
|---|---|
| Basic Salary | 5,86,000 |
| Dearness Allowance (DA) | 1,46,500 |
| House Rent Allowance (HRA) | 2,93,000 |
| Leave Travel Assistance (LTA) | 73,250 |
| Conveyance Reimbursement | 18,000 |
| Training Reimbursement | 15,000 |
| Special Allowance | 1,83,450 |
| Employer’s EPF Contribution | 87,900 |
| Employer’s NPS Contribution | 1,02,550 |
| Total Gross Salary | 15,05,650 |
| Exemptions & Deductions | Amount (₹) |
| Employer’s EPF Contribution | 87,900 |
| Conveyance Reimbursement | 18,000 |
| Training Reimbursement | 15,000 |
| Standard Deduction | 75,000 |
| Total Deductions | 2,03,100 |
| Gross Taxable Income | 13,02,550 |
| Deduction under Section 80CCD(2) | 1,02,550 |
| Net Taxable Income | 12,00,000 |
| Tax Payable | 60,000 |
| Rebate under Section 87A | 60,000 |
| Final Tax Liability | Zero |
If your CTC is ₹15 lakh, incorporating DA, EPF, and NPS contributions into your salary structure can reduce your taxable income to ₹12 lakh. This allows you to benefit from the ₹60,000 rebate under Section 87A, making your final tax liability zero.
Smart salary structuring is the key to reducing tax liability. By optimizing your basic salary, allowances, and employer contributions to EPF and NPS, you can significantly lower taxable income and potentially pay zero tax—even with a higher CTC. Always consult a tax expert to structure your salary effectively and maximize tax savings.
