Latest income tax slabs 2025-26 after Budget 2025: Zero income tax on Rs 13.7 lakh salary? Don’t rub your eyes! Finance Minister Nirmala Sitharaman in her Budget 2025 speech announced that there will be NIL or zero income tax for individuals earning up to Rs 12 lakh. But did you know that for salaried individuals, the tax-free annual income can reach Rs 13.7 lakh, compared to Rs 12 lakh for others!
“I am now happy to announce that there will be no income tax payable upto income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs 12.75 lakh for salaried tax payers, due to standard deduction of Rs 75,000,” FM Sitharaman announced in her Union Budget speech.
This advantage of no tax till Rs 13.7 lakh income stems from the Rs 75,000 standard deduction and National Pension System (NPS) investments. Section 80CCD(2) allows tax deduction of up to 14% of basic salary invested in NPS, whilst the old tax regime offers 10%.
According to an ET analysis, a salaried individual with Rs 13.7 lakh yearly income can achieve tax savings of approximately Rs 96,000 through NPS contributions. It’s important to note that this benefit requires employer participation in NPS as part of cost to the company, as employees cannot opt independently.
For an annual income of Rs 13.7 lakh, with basic salary at 50% (Rs 6.85 lakh), the NPS contribution at 14% would amount to Rs 95,900. Combined with the Rs 75,000 standard deduction, this eliminates tax liability on the entire Rs 13.7 lakh.
It’s interesting to note that despite this opportunity existing for nearly a decade, only 2.2 million individuals have enrolled. “Only a few corporates are interested in rolling out the NPS benefit, and even fewer employees are willing to enrol in it,” said Sudhir Kaushik, chief executive of tax filing portal Taxspanner.com.
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The extended NPS lock-in period and withdrawal limitations at maturity discourage many investors. Pre-retirement withdrawals are restricted to exceptional circumstances. Upon maturity, only 60% can be withdrawn, whilst 40% must be invested in an annuity for lifetime pension.
Financial experts consider these restrictions beneficial. “The lack of liquidity in NPS is not necessarily bad because the money is at the right place. Investment returns can be enormous if held for the long term,” said Sriram Iyer, chief executive of HDFC Pension.
NPS provides additional benefits, including asset mix selection, fund switching options, and pension fund manager changes without tax implications. It maintains the industry’s lowest fund management charges at 0.09% annually, compared to 1-1.5% for the most economical mutual funds. This has enabled NPS funds to outperform mutual funds in similar categories.
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