Delhi - The Union Budget 2025 has introduced significant changes to the income tax structure, bringing relief to salaried individuals allowing to pay zero tax up to a certain limit. Finance Minister Nirmala Sitharaman announced that individuals earning up to Rs 12 lakh annually will not be required to pay any income tax under the new regime. However, this tax-free threshold extends further to Rs 13.7 lakh for salaried employees, thanks to standard deductions and National Pension System (NPS) investments.
Key Announcements from Budget 2025
During her budget speech, FM Sitharaman stated: “I am pleased to announce that individuals earning up to Rs 12 lakh will not have to pay income tax under the new regime. For salaried taxpayers, this exemption limit increases to Rs 12.75 lakh due to the standard deduction of Rs 75,000.”
Furthermore, contributions made to the NPS allow for an additional deduction. Under Section 80CCD(2), employees whose employers contribute to NPS can avail of a tax deduction of up to 14% of their basic salary. This benefit is higher than the 10% limit offered under the old tax regime.
How Salaried Individuals Can Pay Zero Tax
A salaried individual earning Rs 13.7 lakh annually can benefit from tax savings (Paying Zero Tax) of approximately Rs 96,000 by contributing to the NPS. This extension of tax-free income is made possible due to the Rs 75,000 standard deduction and additional deductions available under Section 80CCD(2) of the Income Tax Act.
Tax Benefits Breakdown
For an individual earning Rs 13.7 lakh per annum, the tax calculation is as follows:
| Basic Income (Rs Lakh) | Basic Salary (Rs Lakh) | NPS Contribution (14% of Basic) (Rs) | Taxable Income (Rs Lakh) | Total Tax (Rs Lakh) |
| 13.7 | 6.85 | 95,900 | 11.99 | NIL |
| 16 | 8 | 1.12 lakh | 14.13 | 91,950 |
| 24 | 12 | 1.68 lakh | 21.57 | 2.39 lakh |
| 32 | 16 | 2.24 lakh | 29.01 | 4.50 lakh |
| 48 | 24 | 3.36 lakh | 43.89 | 8.97 lakh |
For an income of Rs 13.7 lakh, where the basic salary is assumed to be 50% of the total salary (Rs 6.85 lakh), the NPS contribution at 14% amounts to Rs 95,900. When combined with the Rs 75,000 standard deduction, this effectively eliminates the tax liability on the entire income.
Low Adoption of NPS Among Salaried Individuals
Despite the availability of these benefits for nearly a decade, only 2.2 million individuals have opted for NPS enrollment. Many corporate employers have not implemented NPS as a benefit, and employees remain hesitant to invest in it.
One of the primary reasons for this reluctance is the extended lock-in period and withdrawal restrictions. Premature withdrawals are allowed only in exceptional cases, and upon maturity, only 60% of the corpus can be withdrawn tax-free ( Zero Tax ), while the remaining 40% must be invested in an annuity to provide a lifetime pension.
Financial Experts’ Take on NPS
While some view these restrictions as drawbacks, financial experts argue that they encourage long-term savings and wealth accumulation. “The lack of liquidity in NPS is not necessarily a disadvantage because the money remains invested in a secure and high-growth environment. Over time, NPS returns can significantly outperform other investment options,” said Sriram Iyer, CEO of HDFC Pension.
Additionally, NPS offers flexibility, including the ability to select an asset mix, switch funds, and change pension fund managers without tax implications. With one of the lowest fund management fees at just 0.09% annually—compared to 1-1.5% for even the most cost-effective mutual funds—NPS investments have consistently delivered superior returns.
Conclusion
The Budget 2025 changes offer significant tax-saving ( Paying Zero Tax) opportunities for salaried individuals earning up to Rs 13.7 lakh. By leveraging the benefits of NPS contributions and standard deductions, employees can effectively bring their taxable income to a level where they owe no income tax ( Paying Zero Tax). While NPS adoption remains low, its long-term financial advantages make it a valuable tax-saving and retirement-planning tool for those willing to invest.