Zero tax possible even on annual income of ₹ 18.5 lakh, expert told how

Tax Free Income: Whenever it comes time to file income tax return (ITR), taxpayers are often confused about choosing a tax system. However, ever since the government has announced a change in the income tax slab of the new tax system, it has become easier for taxpayers with an annual income of Rs 12,00,000 as they do not have to pay any tax for that income. In addition, this limit has been increased to Rs 12.75 lakh for salaried taxpayers due to a standard deduction of Rs 75,000. On the other hand, the old tax system remains a favorite for many taxpayers as it has several options such as EPF, PPF, home loan principal and interest, and life insurance premium. In this article, we will take a look at the tax slab for the old tax system (FY 2025-26) and will also show expert calculations on how to make our annual salary of Rs 18,50,000 tax-free.

First of all, we know how much income is tax-free under the old system

The annual income of up to Rs 5 lakh is tax-free after exemption in the old tax system.

Rebate and deduction

There are more than 70 discounts and deductions available under the old tax system. The most popular among them is 80C.

What are the cuttings under Section 80C?

A cut of up to Rs 1.5 lakh from total income can be claimed. You can show EPF (Employees Provident Fund), PPF (Public Provident Fund), ELSS (Equity-Link Savings Scheme), NSC (National Savings Certificate), SSY (Sukanya Samriddhi Yojana), SCSS (Senior Citizen Savings Scheme) etc.

Calculation of zero tax on Rs 18.5 lakh annual salary

In this article, we will show the calculations done by experts how you can pay 0 tax at a salary of Rs 18,50,000 per year. You can also show many other cuts in addition to Section 80C. Here is a step-by-step calculation:

Basic pay

CTC: Rs 18,50,000
Basic Salary: Rs 9,25,000

Salary after 80C deduction

Rs 18,50,000- Rs 1,50,000 (EPF, PPF, others)
= 17,00,000 rupees

Section 80D deduction for yourself

Under Section 80D, individuals can claim tax deduction on medical insurance premiums up to Rs 50,000 per financial year for senior citizens and up to Rs 25,000 for non-distinguished citizens.
Rs 17,00,000- Rs 25,000 = Rs 16,75,000

Section 80D- Parents

If the age of the parents is more than 60 years, a discount of Rs 50,000 is given under Section 80D.
Rs 16,75,000- Rs 50,000 = Rs 16,25,000

Home loan interest

In addition, you can take a discount of up to Rs 2,00,000 under Section 24B for home loan interest.
Rs 16,25,000 – Rs 2,00,000 = Rs 14,25,000

Education loan interest

The interest on education loan comes under Section 80D of the Income Tax Act. You can claim the entire interest paid on education loans.

Here we are taking a discount of Rs 90,000 under education loan interest.
Now taxable income will be Rs 13,35,000 (Rs 14,25,000-90,000).

Standard cut

A standard deduction of Rs 50,000 has been allowed by the government.
Rs 13,35,000 – Rs 50,000 = 12,85,000 rupees

NPS contribution – self+employer

Self-NPS contribution under Section 80 CCD 1B is exempted from income tax and the maximum limit for this is Rs 50,000. You can also claim 10 percent of your basic salary and dearness allowance under NPS contribution (Section 80 CCD 2B) of self-employer.

Taxable income after NPS

We are taking the own contribution of Rs 50,000 for NPS and the contribution of employer of Rs 1,08,000. Your taxable income after NPS deduction will be Rs 11,27,000- [12,85,000 रुपये-(50,000 रुपये+1,08,000 रुपये)]

HRA exemption

The maximum HRA cut is 4,80,000. It can be exempted under two conditions- Real HRA receives- Rs 6,00,000 and real fare payment- 6,00,000 per year.
Rs 11,27,000 – Rs 4,80,000 = Rs 6,47,000

Donation

Under Section 80G, you can claim donations up to a maximum of 10 percent of the basic salary. Here we are accepting donations of Rs 40,000.
Rs 6,47,000 – Rs 40,000 = 6,07,000

Flexi

LTA+Food Allowance+Books and Magazines
(Rs 60,000 +43,200 rupees +21,600 rupees) = Rs 1,24,800
6,07,000-1,24,800 rupees = 4,82,200 rupees

Final taxable income

Now your final taxable income is Rs 4,82,000. This means that your tax liability will be zero, because the annual income of up to Rs 5 lakh is tax-free after exemption in the old tax system.