How to pay zero tax under the new tax regime: Two deductions salaried taxpayers can use to lower taxable income to ₹12 lakh

Smart Tax Saving: How Salaried Employees Can Pay Zero Tax Under New Regime

With the new tax regime becoming the default option this financial year, many salaried taxpayers are worried about higher tax outflows. However, financial experts reveal a little-known strategy that can help employees with income up to ₹12 lakh pay zero tax legally by utilizing two key deductions.  

The ₹12 Lakh Tax-Free Formula

Under the new tax regime (Section 115BAC), taxpayers can combine these two provisions to minimize their liability:  

1. Standard Deduction (₹50,000)

   - Recently extended to the new regime, this flat deduction reduces taxable income automatically.  

2. Employer’s NPS Contribution (Up to ₹1.5 Lakh under Section 80CCD(2))

   - If your employer contributes to your National Pension System (NPS) account, this amount is fully exempt—even in the new regime.  

How It Works

For a taxpayer earning ₹12 lakh:

 

- Gross Income: ₹12,00,000  

- Less Standard Deduction: ₹50,000  

- Less Employer’s NPS Contribution (if ₹1.5 lakh): ₹1,50,000  

- Taxable Income: ₹10,00,000  

Since the new regime offers zero tax for income up to ₹7 lakh and minimal rates beyond that, the remaining ₹3 lakh would attract only about ₹15,000 in tax—which can be further offset by rebates like Section 87A (for incomes under ₹7 lakh post-deductions).  

Why Many Miss This Opportunity

- Most employees don’t negotiate NPS contributions with employers.  

- Few realize the standard deduction applies in the new regime.  

- Many assume the new regime offers no deductions at all.  

Expert Advice

"Employees should proactively ask their HR to allocate part of their CTC to NPS," says CA Ritesh Mehta, a tax consultant. "Even a ₹50,000 employer contribution can significantly lower taxable income."  

Final Takeaway

While the old regime still benefits those with home loans, insurance, and HRA claims, the new regime isn’t entirely deduction-free. Smart planning can make a ₹12 lakh income nearly tax-free—proving that with the right moves, even the new tax system has hidden advantages.