Budget 2025-26: Major Tax Relief for Salaried Individuals
The Indian government has announced tax benefits that allow salaried individuals earning up to ₹13.7 lakh per year to pay zero income tax under the new income tax regime. This is made possible by leveraging the ₹75,000 standard deduction and contributions to the National Pension System (NPS).
New vs Old Tax Regime: Key Differences
- Standard Deduction: ₹75,000 for salaried employees
- NPS Contributions: Up to 14% of basic salary (for government employees) and 10% for others under Section 80CCD(2)
Tax Calculation Breakdown
| Annual Salary (₹ Lakh) | Basic Salary (₹ Lakh) | NPS Contribution (₹) | Taxable Income (₹ Lakh) | Total Tax (₹ Lakh) |
|---|---|---|---|---|
| 13.7 | 6.85 | 95,900 | 11.99 | NIL |
| 16.8 | 8.4 | 1.12 lakh | 14.13 | 24,121 |
| 21.5 | 10.75 | 1.5 lakh | 17.2 | 32,162 |
By utilizing NPS employer contributions, an individual can bring their taxable income below the threshold, effectively paying zero tax.
Why Only a Few People Benefit from NPS?
Despite the lucrative tax-saving potential, only 2.2 million individuals are currently benefiting from employer-linked NPS contributions. Experts cite:
- Limited corporate adoption of employer NPS contributions
- Lock-in period restrictions on withdrawals
- Mandatory annuity purchase at retirement
Why Do Fewer People Choose NPS?
Despite lucrative tax benefits, only 2.2 million individuals currently benefit from employer-linked NPS contributions due to:
- Limited employer adoption of NPS contributions
- Lock-in period restrictions
- Mandatory annuity purchase at retirement
Should You Opt for the New Tax Regime?
Financial experts recommend the New Tax Regime for higher-income earners, while the Old Tax Regime is beneficial for those claiming multiple deductions.
What’s Next?
- Income Tax Calculator: Estimate your tax savings.
- NPS Benefits Explained: Learn more about NPS tax benefits and investment options.
- New vs Old Tax Regime Analysis: Which one is right for you?
