Your CTC up to ₹15 lakh or more can become tax-free under new regime in FY 2025-26; here’s how

The Union Budget 2025 proposed nil tax on up to ₹12 lakh taxable income under the new tax regime. For salaried employees, the tax-free income limit will increase to a taxable income of up to ₹12.75 lakh due to the ₹75,000 standard deduction available to them.

The answer is that your total CTC can exceed ₹12 lakh, and you may still be eligible to claim the nil tax benefit. However, to understand how this is possible, you should first know the difference between your salary package or CTC and your taxable income.

Taxable income vs salary package/CTC

Nil tax on CTC over ₹12 lakh possible

Though the new tax regime offers very few exemptions and deductions, tax experts are of the view that nil tax on CTCs over ₹12 lakh can be possible by smartly rejigging the salary structure.

For this, employees would need to have their employers' structure their salary package in a way that reduces their taxable income to ₹12 lakh.

Such a restructuring would depend on certain components of the salary package that help in reducing the taxable income, which may vary from one employee to another.

However, this might not be feasible for every employee, especially if employer is unwilling to adjust the salary structure.

"Achieving a nil tax liability on a salary over ₹12 lakh under the new tax regime is possible but contingent upon the specific components of the salary package,” said CA Dr Suresh Surana.

“Elements such as the basic salary, dearness allowance (DA), and employer contributions to retirement benefits like the National Pension System (NPS) and Employees' Provident Fund (EPF) play pivotal roles in determining taxable income. Strategically structuring these components can maximise available deductions and exemptions, thereby reducing the overall tax liability," he added.

How can you have nil tax on ₹15 lakh CTC

Let's understand this further with the example of an employee whose CTC is around ₹15 lakh.

According to Dr Surana, this person can claim the nil tax benefit if his CTC package includes certain components like dearness allowance, house rent allowance, LTA, conveyance reimbursement, provident fund and NPS contributions by the employer.

The following table illustrates how his ₹15 lakh CTC will become tax-free if these components are available:

Can you claim nil tax on income over ₹15 lakh?

Technically yes, according to the tax expert.

“There is no fixed salary amount up to which tax liability is nil under the new tax regime. Instead, it depends on the structuring of salary components such as basic salary, dearness allowance (DA), employer contributions to EPF/NPS, and other tax-exempt allowances,” said Dr Surana.

“Proper salary structuring can enable in maximising deductions and rebates, effectively optimising the tax liability for higher salary levels,” he added.

What could be the complications?

As explained above, it's technically possible to rejig the salary structure to claim nil tax benefit under the new tax regime if your CTC is ₹15 lakh or more. However, it may not be easy as a lot depends on your employer and your monthly cash flow requirements.

Such an exercise can reduce your take home pay. Take for instance the above example. The total employer's contribution to NPS and EPF in this case is ₹1.9 lakh, which reduces his gross income to ₹13,15,200. As both NPS and EPF help in saving for retirement, a lot of employees may not want to lock their funds in both schemes.

To claim the conveyance and training reimbursements of ₹18,000 and ₹15,000 respectively, he will need to produce actual bills to claim exemptions. It would be fine if he's actually spending such amount on conveyance and training, if not, then the exemption would be cancelled. Further, dearness allowance component is not generally available in the CTC package of employees in the private sector.