No Tax on Earnings up to ₹13.7 Lakh: Here’s How You Can Achieve It

In her Budget speech, Finance Minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh annually are now exempt from income tax. However, for salaried taxpayers, the threshold is slightly higher at ₹12.75 lakh due to a standard deduction of ₹75,000. Additionally, by making use of the National Pension System (NPS), salaried individuals can legally increase their tax-free income to ₹13.7 lakh.

A salaried individual with an annual income of ₹13.7 lakh can lower their tax liability by approximately ₹96,000 through contributions to the pension scheme. However, this benefit is available only if the employer includes NPS as part of the cost-to-company (CTC) structure, as employees cannot independently enrol in it.

How NPS Helps in Reducing Taxable Income?

Under Section 80CCD(2) of the Income Tax Act, up to 14% of an employee’s basic salary contributed to NPS by the employer is tax-deductible. In contrast, under the old tax regime, this benefit was limited to 10% of the basic pay. This allows employees to lower their taxable income significantly.

For instance, if an individual earns ₹13.7 lakh annually, the following deductions apply:

With these deductions, the taxable salary falls below ₹12 lakh, ensuring that no income tax is payable. However, this benefit is only applicable if the employer includes NPS as part of the cost-to-company (CTC) structure. 

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