Rs. 16 LPA CTC, 0 Rupee Tax! Know How to Survive Income Tax Impact in FY 2025-2026

Considering the Income Tax Slabs for FY 2025-26 (New Regime), without exemptions, a Rs 16 lakh annual package would attract significant tax. The following steps show how to avoid the same.

India’s New Tax Era Begins – Are You Ready for the Changes? Click here

Step 1: Standard Deduction

Salaried individuals are entitled to a standard deduction of Rs 75,000 under Section 87A in the new tax regime.

Gross Income: Rs 16,00,000

After Deduction: Rs 16,00,000 – Rs 75,000 = Rs 15,25,000 taxable

Step 2: NPS Contribution by Employer

Employers can contribute up to 14% of basic pay to an employee’s NPS account. This is tax deductible.

Assume basic pay = 50% of CTC = Rs 8,00,000

NPS deduction = 14% of Rs 8,00,000 = Rs 1,12,000

Taxable income = Rs 15,25,000 – Rs 1,12,000 = Rs 14,13,000

India’s New Tax Era Begins – Are You Ready for the Changes? Click here

Step 3: EPF Contribution by Employer

Employer’s contribution to the Employee Provident Fund (EPF) is also tax exempt up to 12% of basic pay.

12% of Rs 8,00,000 = Rs 96,000

Taxable income = Rs 14,13,000 – Rs 96,000 = Rs 13,17,000

Step 4: Small Savings Investments

Investments in schemes like Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (for eligible taxpayers) provide further relief.

Example investment: Rs 1,00,000 in Sukanya Samriddhi + Rs 1,50,000 in PPF

Net additional benefit: Rs 17,500

Taxable income = Rs 13,17,000 – Rs 17,500 = Rs 12,99,500

Step 5: Reimbursements and Allowances

If your employer structures your salary properly, official reimbursements on bills such as entertainment, mobile, fuel, transport, or uniform can be claimed tax free.

Example reimbursements:

Entertainment bills: Rs 40,000

Transport allowance: Rs 60,000

Fuel bills: Rs 25,000

Mobile bills: Rs 10,000

Uniform bills: Rs 15,000

Total reimbursement: Rs 1,50,000

After adjusting this, the Taxable income becomes Rs 12,99,500 – Rs 1,50,000 = Rs 11,49,500

Final Outcome

At this stage, your taxable income falls below Rs 12,00,000, which qualifies for zero tax liability under the new regime. Despite having a CTC of Rs 16 lakh, the effective income tax payable is nil.

Things to Keep in Mind

1. Salary structuring is very important to tax planning. A properly designed CTC, with a balance of basic pay, employer contributions, and allowances, can reduce tax.

2. Employer-linked benefits do matter. NPS and EPF contributions directly lower taxable income without additional effort from the employee.

3. Use permitted savings schemes such as PPF and Sukanya Samriddhi as they are still relevant under the new regime.

4. Expense reimbursements are efficient. Bills for official expenses reimbursed by the employer can legally reduce tax burden.

Limitations that might Get in the Way

Benefits vary by employer payroll/HR policies. Not all companies extend NPS or reimbursement flexibility.

Investments like PPF require actual cash outflow, so liquidity must be considered.

Tax rules change frequently; recalculation is necessary every financial year.

Bottom Line

With careful planning, it is entirely possible to pay zero income tax on a CTC of Rs. 16 lakh in FY 2025-26 under the new tax regime. Tax savings do not only depend on investments but also on how your employer structures salary and benefits.

Disclaimer: This is not investment advice. Consult a qualified tax professional before making financial decisions.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates