Delhi, February 5, 2025: Finance Minister Nirmala Sitharaman announced in the 2025 Union Budget that annual income up to ₹12 lakh would be tax-free. This has provided significant relief to the middle class. Now, people with an annual income of up to ₹12 lakh will have more money in their hands, which they can use for expenses, savings, and investments. The Finance Minister has also made changes to the tax slabs in the new system. As a result, people with income above ₹12 lakh will also have to pay less tax than before.
You will need to invest in NPS… Tax experts say that if a person is employed, they could potentially have zero tax on an annual income of up to ₹13.7 lakh. For this, they would need to invest in the National Pension Scheme (NPS). Under the new income tax system, a tax deduction is available on NPS contributions up to 14% (plus DA) of the basic salary. This deduction is available under Income Tax Act Section 80CCD(2). However, this deduction is only available when the employer provides the option for the employee to invest in NPS.
This is how you can save on tax… Suppose an individual’s annual income is ₹13.7 lakh. If their basic salary is considered to be 50% of this, it would amount to ₹6.85 lakh. 14% of this would be ₹95,900. An employee can claim a tax deduction on NPS contributions up to ₹95,900 annually. If this amount is combined with a standard deduction of ₹75,000, the total deduction would become ₹1,70,900. In this way, the individual would not have to pay any tax.
About NPS: The National Pension Scheme (NPS) was introduced by the government in 2004 and was made available to the general public in 2009. It is one of the best plans for retirement savings. When a person turns 60, 60% of the accumulated funds in the NPS are paid as a lump sum. There is no tax on this amount. The remaining 40% of the money must be invested in an annuity, which provides the individual with a pension every month. The returns on NPS are good, and it offers an option for market-linked investments.
Summary: Discover ways to avoid paying tax on income exceeding 12 lakhs, through exemptions and deductions available under the Income Tax rules.