Tax planning 2026: How salaried staff can pay zero tax on income more than Rs 14 lakh under New Tax Regime

As India prepares for the Union Budget 2026 on Sunday, February 1, the policy groundwork is already in motion. Finance Minister Nirmala Sitharaman has begun pre-Budget consultations with states and Union Territories, setting the stage for fiscal priorities in FY27. With this being her ninth consecutive Budget, attention is once again on possible refinements to the personal tax framework.

The spotlight remains on the new tax regime, which introduced wider slabs and lower rates while doing away with most deductions. Under this structure, individuals earning up to Rs 12 lakh annually pay no income tax — a change that has reshaped tax planning for salaried professionals.

What is now drawing interest is how this zero-tax threshold can be extended. Salaried employees opting for the new regime can legally pay no tax on incomes of up to Rs 14.65 lakh by structuring their pay around employer-supported retirement benefits. By maximising exemptions on employer contributions to EPF and NPS, taxpayers can significantly raise the income level at which tax becomes payable, without relying on personal deductions.

“Salaried individuals opting for the new tax regime can structure their compensation to keep income of up to Rs 14.66 lakh effectively tax-free, provided employer-supported retirement benefits are optimally used,” said CA Akshay Jain, Direct Tax Partner at NPV & Associates LLP.

Under the optimal structure, an employee’s basic salary should account for about 50% of total cost-to-company (CTC). If the employer contributes 12% of basic salary to EPF and up to 14% to NPS, the tax impact changes dramatically. With these contributions and the standard deduction of Rs 75,000, a gross salary of around Rs 14.65 lakh can be brought down to a taxable income of just under Rs 12 lakh — the zero-tax slab under the new regime.

Jain said employer-routed NPS has emerged as the most effective tax optimisation tool available today. “Employer contribution to EPF is exempt under Section 17(2), while employer contribution to NPS qualifies under Section 80CCD(2) — a deduction specifically allowed even in the new regime. This makes employer-facilitated NPS the most powerful lever for tax planning.”

However, the benefits come with clear boundaries. Combined employer contributions to EPF, NPS and superannuation funds are exempt only up to Rs 7.5 lakh per year. Any amount beyond this limit is taxed as a perquisite. More importantly, employee-funded NPS contributions do not qualify for deductions under the new regime unless routed through payroll as part of employer contributions.

In numerical terms, the impact is striking. On a CTC of Rs 14.65 lakh, with basic salary at Rs 7.32 lakh, employer EPF of Rs 87,900 and employer NPS of Rs 1.02 lakh, and after accounting for the standard deduction, taxable income falls to about Rs 11.99 lakh — resulting in zero income tax liability.

Retirement corpus

Beyond immediate tax savings, the structure also strengthens long-term financial security. Consistent investments through EPF and NPS can build a substantial retirement corpus, especially for younger employees with long investment horizons.

The design of the new tax regime clearly signals a policy shift: incentives are moving away from individual deductions and towards employer-facilitated retirement savings. For salaried professionals, this means tax efficiency now depends less on year-end investments and more on proactive engagement with employers to optimise salary structures.

With the right mix of basic pay and retirement benefits, employees can achieve both higher take-home efficiency and stronger long-term wealth creation — proving that tax planning under the new regime is no longer about finding loopholes, but about structuring income intelligently.