ITR Filing FY25: Pay Zero Tax on a ₹18 Lakh Salary With These Deductions Under the New Tax Regime

With the Income Tax filing deadline for the fiscal year 2025 approaching, many salaried professionals are weighing the pros and cons of the new vs. old tax regimes. From FY 2023-24 onwards, the new tax regime has become the default option though taxpayers can still opt for the old one at the time of filing returns.

One common concern: Can you actually pay zero tax on a ₹18 lakh salary under the new regime? The surprising answer is yes, with the right mix of deductions and exemptions. Let’s break it down with an example.

Annual Salary of ₹18,00,000 Under New Tax Regime

Let’s assume your gross salary is ₹18,00,000 per annum. You’ve opted for the new tax regime and you’re also eligible for some key deductions:

Step-by-Step Tax Calculation

1. Standard Deduction

•  Under the new regime, all salaried taxpayers are eligible for a standard deduction of ₹75,000.
• Net income: ₹18,00,000 - ₹75,000 = ₹17,25,000

2. Home Loan Interest (Let-Out Property)

If you’ve rented out a house purchased on loan, you can claim interest up to ₹2,00,000 as deduction.

Net income: ₹17,25,000 - ₹2,00,000 = ₹15,25,000

3. Employer’s NPS Contribution (Sec 80CCD(2))

If your employer contributes to your NPS (up to 14% of basic salary for government employees, 10% for others), that is fully tax-exempt.

 Assuming a 12% contribution = ₹2,16,000

Net income: ₹15,25,000 - ₹2,16,000 = ₹13,09,000

4. HRA, LTA, Travel Allowances (Tax-Free Allowances)

 Suppose you’re eligible for tax-exempt allowances worth ₹1,50,000.

Net income: ₹13,09,000 - ₹1,50,000 = ₹11,59,000

5. Gift or Family Pension Exemption

 You can claim exemption up to ₹50,000 on gifts or family pension received.

Net taxable income: ₹11,59,000 - ₹50,000 = ₹11,09,000

Final Tax Computation

With your taxable income now at ₹11,09,000, you fall under the rebate threshold of ₹12 lakh. As per the new regime, a tax rebate of ₹25,000 is applicable, effectively reducing your net tax liability to zero.

New Tax Regime Slabs (FY 2024-25)

Rebate under Section 87A is applicable if taxable income is up to ₹7 lakh (for general cases) and up to ₹12 lakh under marginal relief in the new regime.

Read More: ITR Filing FY25: Are ESOPs Taxable?

Conclusion

Even with a salary of ₹18 lakh, you can legally pay zero tax under the new tax regime—if you use all eligible deductions smartly. Factors like NPS contributions, home loan interest on a let-out property, and valid allowances play a major role.

As the default tax regime, the new regime offers simplicity and opportunities especially for those who do not claim many deductions under the old regime. Make sure you evaluate both options before filing your ITR.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.