Maximize Your Earnings: Understanding the New Tax Regime for FY25-26

How to Maximize Take-Home Pay Under the FY25–26 New Tax Regime on ₹18 Lakh Income

July 2025 — The government’s revamped tax structure for FY25–26 brings welcome changes for middle- and upper-middle-income earners, especially salaried professionals earning between ₹12 and ₹20 lakh per year. With broader slabs and a higher zero-tax threshold, the new regime offers real savings—but only if you know how to take full advantage of the available deductions.

New Tax Slabs: FY25–26

Here's how income is now taxed under the new regime:

Income Range	Tax Rate
Up to ₹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%
Above ₹24,00,000	30%

Section 87A Rebate: Expanded for FY25–26

If your net tax (before cess) is within ₹60,000, you're eligible for a full rebate under Section 87A. That means:

Salaried individuals can bring taxable income down to ₹12,75,000 and still pay zero tax.
Non-salaried taxpayers hit zero-tax if their income falls below ₹12,00,000 after deductions.

₹18 Lakh Salary: Tax Optimization Example

Assume you’re a salaried individual. Here’s how your taxes can be trimmed under the new regime:

Gross Annual Salary: ₹18,00,000
Standard Deduction (automatic for salaried): ₹75,000
Employer’s NPS Contribution (10% of basic + DA): ₹1,10,000
Tax-Free Interest (e.g., PPF/SSA): ₹17,500
Post Office Savings Interest: ₹3,500

Net Taxable Income: ₹15,94,000

Tax Calculation:

First ₹4,00,000 – No tax
Next ₹4,00,000 @ 5% – ₹20,000
Next ₹4,00,000 @ 10% – ₹40,000
Final ₹3,94,000 @ 15% – ₹59,100

Total Tax: ₹1,19,100 Health & Education Cess (4%): ₹4,764 Total Liability: ₹1,23,864

Can You Reduce This Further?

Yes. If you:

Max out employer-side NPS and EPF contributions,
Use eligible tax-free incomes (PPF/SSA interest, Post Office interest),
Possibly lower your taxable income to under ₹12,75,000…

Then your total tax burden could drop to zero—thanks to the Section 87A rebate and marginal relief.

What’s Still Allowed in the New Regime?

While the new system eliminates most personal deductions like 80C, HRA, or LTA, a few specific exemptions and benefits remain:

Standard deduction for salaried and pensioners: ₹75,000
Employer NPS contribution (up to 10% private/14% govt): Deductible
Employer EPF contribution: Tax-free up to 12%
Interest from Post Office Savings Account: Up to ₹3,500 (₹7,000 joint)
Agnipath Scheme Contributions: Fully deductible and exempt
Tax-Free Interest from PPF/SSA: No deduction, but interest isn’t taxed
Transport allowance (for differently-abled): Fully exempt

Other Useful Exemptions

Family pension: Up to ₹25,000 or 1/3rd—whichever is less—is exempt
Let-out property: 30% of rental income is standard deduction
Vacant second house: No deemed rent assumed
Gratuity: Up to ₹25 lakh tax-exempt
Leave encashment: Up to ₹25 lakh exempt on retirement
VRS payout: Up to ₹5 lakh exempt
Matured Life Insurance: Tax-free if conditions met

Takeaway: Optimizing the New Regime

The new tax regime is built around simplicity and fewer conditions, rewarding those with employer-linked benefits and moderate investments. While traditional savings-based deductions have been trimmed, salaried professionals can still hit zero-tax territory with careful planning and a cooperative HR setup.

If you're earning around ₹18 lakh, making the right moves—through employer NPS, tax-free interest, and timing your incomes—can significantly increase what lands in your bank account each month.