How to Pay Zero Tax on Your Salary? Understand the CTC Formula for 12, 15, and 17 Lakh Income
Siddhi Jain March 17, 2025 06:15 PM

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.

Understanding CTC and Taxable Income

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.

How to Make ₹15 Lakh CTC Tax-Free?

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 Breakdown for ₹15 Lakh CTC

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

Deductions and Exemptions Calculation

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

Example Calculation

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.

Conclusion

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.

© Copyright @2025 LIDEA. All Rights Reserved.