How to Pay Zero Tax with a Salary of Rs. 13.7 Lakh
The Indian government has introduced significant changes in the income tax slabs and deductions in the 2025-26 budget, making it possible for individuals to optimize their tax liabilities effectively.
If you earn a salary of Rs. 13.7 lakh per annum, you can potentially reduce your tax liability to zero by leveraging the new income tax regime, standard deductions, and strategic investments. This article will guide you through the process, ensuring you make the most of the available tax-saving opportunities.
Understanding the New Income Tax Slabs (2025-26)
The new income tax regime, introduced in the 2025-26 budget, offers lower tax rates but with fewer exemptions and deductions. Here are the updated tax slabs for individuals:
Up to Rs. 3 lakh: Nil
Rs. 3 lakh to Rs. 6 lakh: 5%
Rs. 6 lakh to Rs. 9 lakh: 10%
Rs. 9 lakh to Rs. 12 lakh: 15%
Rs. 12 lakh to Rs. 15 lakh: 20%
Above Rs. 15 lakh: 30%
Additionally, a standard deduction of Rs. 50,000 is available under the new regime, which reduces your taxable income.
How to Pay Zero Tax with a Salary of Rs. 13.7 Lakh
To achieve zero tax liability, you need to strategically utilize deductions and investments. Here’s a step-by-step breakdown:
1. Claim the Standard Deduction
The standard deduction of Rs. 50,000 is automatically applied to your salary, reducing your taxable income from Rs. 13.7 lakh to Rs. 13.2 lakh.
2. Invest in the National Pension System (NPS)
Under Section 80CCD(1B), you can claim an additional deduction of Rs. 50,000 for investments in NPS. This further reduces your taxable income to Rs. 12.7 lakh.
3. Utilize Section 80C Deductions
Section 80C allows deductions up to Rs. 1.5 lakh for investments in instruments like EPF, PPF, ELSS, life insurance premiums, and more. By investing Rs. 1.5 lakh, your taxable income drops to Rs. 11.2 lakh.
4. Claim Deductions for Health Insurance
Rs. 25,000 for health insurance premiums for yourself and your family. This reduces your taxable income to Rs. 10.95 lakh.
5. Calculate Tax Liability
After applying all deductions, your taxable income is Rs. 10.95 lakh. Here’s how the tax is calculated:
Up to Rs. 3 lakh: Nil
Rs. 3 lakh to Rs. 6 lakh: 5% of Rs. 3 lakh = Rs. 15,000
Rs. 6 lakh to Rs. 9 lakh: 10% of Rs. 3 lakh = Rs. 30,000
Rs. 9 lakh to Rs. 10.95 lakh: 15% of Rs. 1.95 lakh = Rs. 29,250
Total tax liability: Rs. 15,000 + Rs. 30,000 + Rs. 29,250 = Rs. 74,250
6. Apply Rebate Under Section 87A
If your total taxable income is below Rs. 7 lakh, you are eligible for a rebate under Section 87A, which reduces your tax liability to zero. However, since your taxable income is Rs. 10.95 lakh, you need to further optimize your investments.
7. Additional Investments to Reduce Taxable Income
To bring your taxable income below Rs. 7 lakh, consider investing in other tax-saving instruments like:
Section 80CCD(2): Employer’s contribution to NPS (up to 10% of salary).
Section 80G: Donations to eligible charities.
Section 80E: Interest on education loans.
By strategically investing an additional Rs. 3.95 lakh, you can reduce your taxable income to Rs. 7 lakh, making you eligible for the Section 87A rebate.
Key Takeaways
Leverage the Standard Deduction: Always claim the Rs. 50,000 standard deduction to reduce your taxable income.
Maximize NPS Investments: Utilize the additional Rs. 50,000 deduction under Section 80CCD(1B).
Utilize Section 80C: Invest up to Rs. 1.5 lakh in eligible instruments to lower your taxable income.
Health Insurance Premiums: Claim deductions under Section 80D for health insurance.
Rebate Under Section 87A: Ensure your taxable income is below Rs. 7 lakh to qualify for the rebate.
Why Choose the New Tax Regime?
The new tax regime is beneficial for individuals who do not have significant investments or expenses eligible for deductions. It offers lower tax rates and simplifies the tax filing process. However, if you have substantial investments, you may want to compare the old and new regimes to determine which one is more advantageous for you.
Final Thoughts
With careful planning and strategic investments, it is possible to reduce your tax liability to zero even with a salary of Rs. 13.7 lakh. By leveraging the new income tax regime, standard deductions, and tax-saving instruments, you can optimize your finances and keep more of your hard-earned money. Always consult a tax advisor to ensure you are making the best decisions based on your financial situation.
This article is designed to provide actionable insights and help you navigate the complexities of the new income tax regime. By following these steps, you can achieve significant tax savings and financial peace of mind.