Tax deduction: Good news! Zero tax on annual income up to ₹ 19.20 lakh, here is the complete calculation
Tax deduction: Whenever it comes to saving tax, the first thing that comes to mind is the old tax regime, in which dozens of deductions like HRA, LTA, 80C were taken. The new tax regime was often considered a “no deduction” system. But now this perception has completely changed.
The government has made the new tax regime so attractive that it has become the first choice for most employed people. But would you believe that with the right planning and smart salary structuring, your tax liability can be zero even on an annual salary of up to ₹ 19,20,000?
Shocked, right? This is not clickbait, but an accurate mathematics of smart financial planning. Come, today we explain to you step-by-step how this magic is possible.
How is this possible?
This miracle is the combined result of three things:
Changes in the new tax regime
The government has included a standard deduction of ₹ 75,000 in it.
Some special deductions
Some deductions are still available in the new tax regime, such as employer’s NPS contribution and home loan interest.
Smart salary structuring
Nowadays companies are offering flexible salary structure (Flexi Pay) to help their employees save tax.
By using these three weapons correctly, you can reduce your taxable income significantly.
First understand the new slabs of the new tax regime (FY 2025-26)
To understand this whole math, first of all we should know the tax slabs.
| Taxable Income (in ₹) | Tax Rate (%) |
| 0 – 4,00,000 | NIL |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| > 24,00,000 | 30% |
The most important rule
Under Section 87A, if your taxable income is up to ₹12 lakh, you get a tax exemption of up to ₹25,000, which reduces your tax to zero. Our whole game is to come below this ₹12 lakh.
A smart breakup of ₹19.20 lakh CTC
Suppose, your company offers you a flexible salary structure that looks something like this:
| Component Income tax filing services | Amount (₹) | Calculation Basis |
| Basic Pay | ₹9,60,000 | Fixed @ 50% of CTC |
| Personal Allowance | ₹4,72,320 | Fixed component |
| Employer PF (minimum option) | ₹21,600 | ₹1,800 × 12 (fixed min opted) |
| Gratuity | ₹46,080 | 4.8% of basic = ₹9.6L × 4.8% |
| Variable Pay (5%) | ₹96,000 | 5% of ₹19,20,000 |
| Flexi/MPMC Components | ₹6,23,600 | This is our main tax-saving tool |
| Total CTC | ₹19,20,000 |
Calculation: How ₹19.20 lakh will become ZERO TAX
Now we will reduce your gross salary of ₹19.20 lakh step-by-step to bring it to taxable income.
Starting salary (CTC): ₹19,20,000
Step 1: Standard deduction (₹75,000)
This is a flat deduction available to every salaried individual.
₹19,20,000 – ₹75,000 = ₹18,45,000
Step 2: Employer NPS contribution (₹84,000)
If your company deposits up to 14% of your basic salary in NPS, then this amount is tax-free.
₹18,45,000 – ₹84,000 = ₹17,61,000
Step 3: Tax-free portion of Flexi Pay (₹6,23,600)
This is the biggest game changer. Companies allow you to claim certain expenses (like car, books, uniforms).
| Flexi Pay Category | Amount (₹) |
| Car/Conveyance | ₹2,85,600 |
| Books & Periodicals | ₹1,08,000 |
| Entertainment | ₹2,40,000 |
| Uniform | ₹90,000 |
| Total | ₹6,23,600 |
₹17,61,000 – ₹6,23,600 = ₹11,37,400
Step 4: Home loan interest and rental income set-off (₹2,60,000)
This is a very important point. If you have rented out your house, you can deduct the home loan interest from your salary income. Let’s say:
Interest deduction: ₹2,00,000
Rental income adjustment: ₹60,000
₹11,37,400 – ₹2,60,000 = ₹8,77,400
Step 5: Other deductions (₹50,000)
The Income Tax Act also provides for some other exemptions, such as gift exemption or family pension. Let us assume an approximate exemption of ₹50,000.
₹8,77,400 – ₹50,000 = ₹8,27,400 (your final taxable income)
Now let’s look at the final tax math
Your final taxable income is ₹8,27,400. Now let’s apply tax on it.
| Slab | Income Range | Rate | Tax (₹) |
| NIL | ₹0 – ₹4,00,000 | 0% | ₹0 |
| 5% | ₹4,00,001 – ₹8,00,000 | 5% | ₹20,000 |
| 10% | ₹8,00,001 – ₹8,27,400 | 10% | ₹2,740 |
| Total Tax | ₹22,740 | ||
| Section 87A exemption | (because income is less than ₹12 lakh) | (-) ₹22,740 | |
| Net tax liability | ₹ 0 |
What do you need to do to get zero tax?
Talk to HR: Ask your company’s HR about flexible salary structure and NPS policy.
Go Flexi Pay: Request to include flexi components in your salary structure.
Opt for Minimum PF: If your long-term goals allow, opt for minimum PF (₹1800/month) to increase your in-hand salary.
Use Home Loan: If you have a home loan and rent a house, make sure to use this deduction.
Conclusion
The new tax regime is now more powerful and flexible than ever. It is not just a tax system but a smart financial planning tool. With the right information and a little planning, you can save a large part of your hard-earned money. Paying zero tax on a salary of ₹19.20 lakh is no longer a dream but a reality, provided you design your salary structure correctly.
Frequently Asked Questions (FAQs)
1. Is it completely legal?
Yes, it is 100% legal and based on smart planning under the rules of the Income Tax Act.
2. What if my company does not offer flexi-pay?
Then this entire calculation will not be possible, as flexi-pay is the biggest part of it.
3. Is it possible without a home loan?
No, home loan interest deduction plays an important role in this calculation.
4. Should I really reduce PF contribution?
It depends on your personal financial goals. PF is a great retirement tool.
5. For which financial year is this calculation applicable?
This calculation is based on the new tax slab applicable for Financial Year 2025-26 (AY 2026-27).
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